The latest US inflation data supported the US dollar exchange rate but did not trigger a significant rally or change the Fed's interest rate expectations.

The US dollar index (DXY) has been moving up following the release of US inflation data yesterday but is still within the consolidation range formed last week. When the news was written on the Asian session on Wednesday (15/February), Dixie was circulating in the 103.40s range.

Actual US inflation data exceeded consensus estimates but continued a continued downward trend. As a result, this data was able to support the USD but was unable to trigger a significant rally.

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The US Bureau of Labor Statistics reported that the consumer price index increased 0.5% (Month-over-Month) in January 2023, higher than the 0.1% increase in the previous period. However, this growth was mainly due to the increase in volatile fuel prices. The core consumer price index increased 0.4% (Month-over-Month) over the same period, in line with the consensus estimate and the same as the previous period.

The primary and core annual inflation rates showed a higher increase than estimates but decreased compared to the previous period. Primary inflation growth was recorded at 6.4% (Year-over-Year) in January or lower than 6.5% in December. Meanwhile, core inflation was 5.6% in January, or decreased compared to 5.7% in December.

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This is the lowest annual inflation report since October 2021 for Uncle Sam's country. Thus, although the figures exceed estimates, the data is expected not to disturb the Fed's interest rate expectations.

Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America, said, "Inflation in the US is sticking. I think the (US dollar) will remain relatively strong in the short term. This will keep Fed policy on track and keep the US dollar strong - (but) not necessarily (become) stronger. The big one is that the inflation data clearly shows that the market is over-estimating a reduction in inflation this year to the point of (hoping it does) allowing the Fed to cut interest rates." 

"The market is inclined to short the dollar for the first half of the year," said Erik Nelson, macro strategist at Wells Fargo, "(But) with CPI numbers like this and recent activity data, it's going to be difficult for the dollar to continue to sell."

Market participants are looking forward to the release of the US retail sales report later tonight, as well as producer inflation and other data sets to be published tomorrow. The search for the next catalyst for the US dollar continues.