USD firmed, despite the fact that December US core CPI came in slightly softer than expected, reinforcing the case for Fed rate cuts later in the year without materially shifting rate expectations – markets are still pricing in 50bps worth of rate cuts this year. Core CPI rose 0.2% m/m versus 0.3% forecast, with annual inflation at a four-year low of 2.6%, prompting muted moves in US treasury yields.
USD gains were most pronounced against JPY, which slid to its weakest level since July 2024 amid political uncertainty after reports that Japan’s prime minister is considering a snap election. JPY was the worst performing currency in the G10.
*Daily move - against G10 rates as of 06:00 GMT, 14.01.26
** Indicative rates - interbank rates as of 06:00 GMT, 14.01.26
Following speculation of a snap election being called in Japan, JPY is weaker this morning.
US CPI is expected to firm in December, with headline and core seen rising around 0.4% MoM, pushing YoY inflation back toward 2.8%. The pickup is largely technical, reflecting earlier data distortions rather than renewed inflation pressure. Unless core meaningfully overshoots, CPI is unlikely to shift the Fed narrative, though a hot headline could briefly support the USD and lift yields.
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