Major pairs are fluctuating in very thin ranges due to the intense uncertainty ahead of tomorrow's US inflation data release.

Market participants are choosing to be patient ahead of tomorrow's US inflation data release. Most major currency pairs fluctuate within very thin ranges. The US Dollar Index (DXY) held steady in the 102.50s from the opening of the Asian session until the beginning of the New York session on Wednesday (January/10).

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Market participants were surprised when the December 2023 FOMC meeting delivered a 75 basis point rate cut projection for 2024. Market speculation has continued to grow since then until traders now expect the Fed to cut interest rates between 140 and 160 basis points.

Some experts argue that market speculation has gone too far. However, there is no evidence strong enough to refute the speculation. Last week's mixed data on Nonfarm Payroll and US Nonmanufacturing PMI further increased uncertainty.

Tomorrow's US inflation data release takes center stage amidst this situation, as price stability is unidirectionally correlated with interest rate expectations. The provisional consensus expects the December 2023 Consumer Price Index (CPI) to increase 0.2% every month and 3.2% on an annualized basis. The US Dollar has the potential to surge if the actual figure is higher than the consensus estimate. Conversely, a weaker actual CPI could pressure the USD rate.

"The US dollar continued its recovery against all major currencies on Tuesday, although it (later) traded steady on Wednesday. However, the dollar's recovery this time is not a reflection of investors reducing their bets on a Fed rate cut," Charalampos Pissouros, senior investment analyst at XM.com, said in a note today, "Whether the greenback will be able to hold on to its gains and continue its rise will probably depend on tomorrow's (release of) US CPI figures for December."

AUD/USD is currently flat at 0.6690, while EUR/USD and GBP/USD are chalking up daily fluctuations of less than 50 pips. The only volatility is seen in USD/JPY which bounced over 0.7% as the US Treasury 10Y yield stabilized above the 4.000% threshold.