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The US CPI report showed core inflation rising to 0.4% (vs 0.3% expected) and headline inflation at 0.6% as forecast. Year-over-year core inflation hit 2.8% (vs 2.7% expected). Despite these numbers, US Treasury yields dipped slightly, with the 2-year yield at 3.962% and the 10-year at 4.422%. Pre-market equity indices like the NASDAQ and S&P 500 remain lower, reflecting cautious investor sentiment. In forex, EUR/USD tested key moving averages while USD/JPY faces resistance near 157.50, with technical indicators suggesting potential for a 157.97-158.26 target. GBP/USD declined amid UK political turmoil, and USD/CAD approaches critical support levels.
The mixed market reaction highlights diverging expectations about Fed policy. While higher-than-expected CPI data typically pressures yields and the dollar, the muted response suggests investors are factoring in potential Fed rate cuts later in 2024. Technical levels like the 200-hour and 100-day moving averages for major forex pairs will be critical for short-term direction. Traders should monitor central bank statements and geopolitical risks, particularly in GBP/USD due to UK political instability.
For Gulf investors, the dollar's performance against the euro and yen could impact regional trade flows and hedging strategies. The USD/JPY resistance at 157.50 is particularly relevant for Gulf importers. Traders should also watch the EUR/USD's 1.1736-1.1758 range for potential breakout signals. Political developments in the UK, such as ministerial resignations, may create volatility in GBP/USD, affecting Gulf investors with exposure to British assets.
