Kiwi finally break shackles and jumps back above 0.68 as markets ignore US consumer price surge

Key Movers

The US dollar fell for a second consecutive day, giving up recent highs and tumbling toward a two-month low. Having patiently awaited December CPI data, investors appeared underwhelmed as reports showed prices, despite posting their largest annual gain in almost 40 years, were largely in line with analyst expectations and offered little to re-shape or accelerate expectations for Fed policy change. Markets used the opportunity to deleverage recent USD shorts, selling down the base currency and chasing gains across commodity linked currencies and risk assets. The dollar index fell over half a percent, touching lows not seen since early November. In light of the market's reaction today, it appears many of the data points driving positive USD price action are already priced in, and the USD could struggle to maintain its recent momentum in the absence of a major move in the rates market. The correction saw the EUR surge through 1.14 to 1.1450 while the GBP jumped through 1.37 and the JPY forced the dollar back below 114.50. The question now; is this the beginning of a correction we expected wouldn’t materialise until Q2, or a minor hiccup in the recent USD resurgence?