Investors have been revising their forecasts for ECB rate hikes

• The dollar slid further and the euro extended gains in yesterday’s trading session
• The CPI print may offer new indications about the pace of the Fed's monetary tightening
• Atlanta Fed President said the U.S economy may be nearing a turn lower in inflation

The dollar slid further yesterday and the euro extended gains following a hawkish shift from the European Central Bank last week and ahead of key data on U.S consumer prices due on Thursday. 

The CPI print may offer new indications about the pace of the Federal Reserve's monetary tightening, and investors are bracing for higher-than-expected numbers that would signal more aggressive interest rate hikes. That readout is expected to show a 0.5% month-over-month increase in January, and 7.3% for the year, according to economists polled by Reuters. 

Economic Calendar

Investors have been revising their forecasts for ECB rate hikes after the bank caught them off guard last week, with President Christine Lagarde flagging for the first time that monetary tightening was a possibility this year. Seeking to temper investors' growing expectations for hardline action, Lagarde calmed markets when she said on Monday there was no need for extensive tightening. But the big shift in central bank policy expectations over the past week, in particular from the ECB, has dampened the dollar's recent upside. 

As the markets work through Lagarde's comments and what Thursday's inflation numbers mean for the Fed, the dollar will likely remain range-bound. The dollar index fell 0.056%, with the euro up 0.1% to $1.1425. 

While the markets await clarity, the dollar and the euro were consolidating within yesterday's ranges. I think that the bottom line for the ECB and the Fed is there's a lot of uncertainty, and so they want to maintain maximum flexibility. The Fed and the ECB need to maintain flexibility and people read into it what they want to. 

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Cleveland Fed President Loretta Mester said Wednesday that future rate increases after March will depend on the strength of inflation and how much it moderates or persists. Also on Wednesday, Atlanta Fed President Raphael Bostic said the U.S economy may be nearing a turn lower in inflation, though he added he was still leaning toward a slightly faster pace of interest rate increases this year.

Euro

The single currency extended gains following a hawkish shift from the European Central Bank last week and ahead of key data on U.S. consumer prices due on Thursday. The CPI print may offer new indications about the pace of the Federal Reserve's monetary tightening and investors are bracing for higher-than-expected numbers. Overall, the EUR/USD traded with a low of 1.1413 and a high of 1.1461 before closing the day around 1.1441 in the New York session.

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Yen

The Japanese Yen gained as the dollar slid further ahead of key data on U.S consumer prices due today. That readout is expected to show a 0.5% month-over-month increase in January and 7.3% for the year. Cleveland Fed President Loretta Mester said yesterday that future rate increases after March will depend on the strength of inflation. Overall, the USD/JPY traded with a low of 114.89 and a high of 115.36 before closing the day around 115.09 in the U.S session.

British Pound

The British Pound steadied against the euro not far from a 1-1/2 month low yesterday amid continued deep uncertainty about the future path of the Bank of England’s monetary policy. Bank of England Chief Economist Huw Pill said that it was reasonable for central banks to withdraw from providing detailed guidance on the policy outlook. Overall, the GBP/USD traded with a low of 1.3488 and a high of 1.3549 before closing the day at 1.3534 in the New York session.

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Canadian Dollar

The Canadian Dollar has posted slight gains yesterday. There are no Canadian events on the calendar this week, so we can expect U.S releases will have a magnified impact on the movement of the Canadian dollar. With the Fed poised to launch a series of rate hikes starting in March and inflation surging in Canada, it’s unlikely that the BoC will simply fold its hands. Overall, USD/CAD traded with a low of 1.2655 and a high of 1.2754 before closing the day at 1.2664 in the New York session.

Australian Dollar

The Australian Dollar was trying for the fourth session of gains yesterday as global equity markets rallied and commodities kept climbing, while Australian bonds formally waved goodbye to buying by the central bank. The Reserve Bank of Australia (RBA) ceased its quantitative easing campaign on Thursday having hoovered up more than A$350 billion ($251.23 billion) in bonds. Overall, AUD/USD traded with a low of 0.7169 and a high of 0.7228 before closing the day at 0.7171 in the New York session.

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Euro-Yen

EUR/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 41 and lies below the neutral zone. In general, the pair has lost 0.15%.

Sterling-Yen

Currently, GBP/JPY is trading below 14 and above 50, 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 45 reading and lies below the neutral zone. On the whole, the pair has lost 0.01%.

Aussie-Yen

Currently, the cross is trading above 14, 50 and below 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 43 reading and lies below the neutral region. In general, the pair has gained 0.63%.

Euro-Sterling

This cross is currently trading below 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 44 and lies above the neutral region. Overall, the pair has lost 0.17%.

Sterling-Swiss

This cross is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 46 and lies above the neutral region. In general, the pair has lost 0.14%.

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