US Dollar advances with US yields jumping higher

NEW YORK (January 17) The US Dollar (USD) roars with the US Dollar Index (DXY) popping above a few important technical levels. The move comes with markets finally realizing that rate cuts will not take place before June for either the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE). US Federal Reserve member Christopher Waller backtracked on his comments from early November and nuanced that rate cuts will come, though only when inflation does not pick up again. 

On the economic front there will be a lot to digest, with an upbeat Retail Sales print for December. Meanwhile headlines are being released out of Davos where the World Economic Forum (WEF) is taking place. When that is still not enough, traders can dig their teeth into no less than three Fed speakers throughout this Wednesday. 

Daily digest market movers: Markets are catching up

• The World Economic Forum in Davos is entering its third day with a lot of headline risk from senior people – central bankers and leaders – making comments, statements and holding interviews. 
• ECB’s Christine Lagarde said that enthusiasm in the markets on rate cuts is not helping to reduce inflation. A rate cut might be likely by the summer. That statement is curious seeing the ECB always shouted they were data dependent, that cuts were not foreseen for 2024 and that forward guidance was impossible. Although rate cuts are negative for a currency, in this case it would mean good news for the EU economy, which sees the Euro off the lows against the US Dollar (EUR/USD). Meanwhile that move has been completely erased in the aftermath of the US Retail Sales. 
• Commodity traders got the monthly OPEC report, which was a very depressed one: OPEC does not see a supply deficit for 2024, rather for the end of 2025, which means no big upside potential for Oil prices under current conditions. 
• The Mortgage Bankers Association has released its weekly MBA Mortgage Applications. Previous number was a rise of 9.9% with this week a rise of 10.4%..
• Bulk data release with Retail Sales at 13:30 GMT:
  • Monthly Import Price Index for December went from -0.4% to 0%.
  • Yearly Import Price Index for December headed from -1.4% to -1.6%.
  • Monthly Export Price Index for December remained unchanged at -0.9%.
  • Yearly Export Price Index for December went from -5.2% to -3.2%.
  • Monthly Retail Sales for December went from from 0.3% to 0.6%.
  • Retail Sales without Cars unexpectatly jumped from  0.2% to 0.4%.
• Fed speakers making their way to the stage this Wednesday: 
  • At 14:00 GMT both Fed members Vice Chairman Michael Barr and Fed’s Board of Governors member Michelle Bowman are speaking.
  • Later this evening at 20:00 GMT, New York Fed’s John Williams will be speaking. 
• Near 14:15 GMT both Industrial Production and Capacity Utilisation were released. Industrial Production went from 0% to 0.1% for December, while Capacity Utilisation for December remained unchanged at 78.6%.
• Around 15:00 the National Association of Home Builders (NAHB) will release its Housing Market Index for January. Previous was at 37, with 39 projected. In that same time slot, Business Inventories will be released, with a steady -0.10% expected for November. 
• Right at the end of this packed Wednesday, near 18:00 GMT the US Treasury is allocating a 20-year Bond and the Fed’s Beige Book will be released near 19:00 GMT. 
• Equity markets are not thriving in this growing yield environment. The goldilocks scenario for rate cuts as of March was fully priced in, and needs to be revalued now. This means a downturn for equities, with Chinese stock indices down across the board near 3%. European equities are nosediving over 1% and US equity futures are holding just above that 1% decline. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 97.4% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting. Around 2.6% expect the first cut already to take place. The more traders reprice cuts to later this year, a small rate hike expectation might come through in the coming days. 
• The benchmark 10-year US Treasury Note jumps to 4.10% and is fueling a stronger US Dollar with its jump in yields. 

FXStreet