Forex Today: US Dollar bides time ahead of US CPI inflation test

Here is what you need to know on Wednesday, January 15:

Markets are witnessing a typical cautious environment before the release of the all-important US Consumer Price Index (CPI) data for December, which will provide fresh insights on the US Federal Reserve’s (Fed) interest rates trajectory.

The US Dollar (USD) remains consolidated following the recent correction from over two-year highs against its major currency rivals. The US benchmark 10-year US Treasury bond yields also lick wounds, with traders digesting a softer US Producer Price Index (PPI) report.

Data published on Tuesday showed that the US annual PPI rose 3.3% in December, missing the expected 3.4% growth, while the core PPI inflation rose to 3.5% in the same period, compared to the estimates of 3.8%. Monthly figures also disappointed. Despite the softer data, markets have fully priced in a rate cut pause at the Fed's policy meeting later this month.

Traders continue to remain wary of the lingering Chinese economic concerns, US President-elect Donald Trump’s policies and the prospects of fewer Fed rate cuts this year, leaving forex majors on the defensive.  

Across the FX board, USD/JPY sidelined near 158.00 almost throughout the Asian session before Bank of Japan (BoJ) Governor Kazuo Ueda came in and propped up the Japanese Yen. The pair remains under heavy selling pressure in the early European session, trading below 157.50. Ueda said the central bank “will raise interest rates and adjust the degree of monetary support if improvements in the economy and price conditions continue.” His comments ramped up bets of a BoJ rate hike next week.

AUD/USD extends its sluggish momentum below 0.6200 amid a cautious risk tone, notwithstanding ongoing efforts by China to support the local currency and the economy. Looming US-Sino trade war fears and dovish Reserve Bank of Australia (RBA) policy expectations keep the underlying bearish sentiment intact around the Aussie.

The Pound Sterling meets fresh supply, dragging GBP/USD back below 1.2200 following an unexpected UK CPI inflation cooldown. The UK annual CPI rose 2.5% in the year to December, down from 2.6% the month before, the Office for National Statistics (ONS) said, missing the estimated 2.7% growth. Services inflation declined sharply to 4.4% YoY in December from November’s 5%. Soft data will likely fan expectations of further easing by the Bank of England (BoE).

EUR/USD turns to the backseat below 1.0300 in early Europe as traders weigh the latest comments from European Central Bank (ECB) Chief Economist Phillip Lane. Lane said:“It takes time for monetary easing to impact and take effect.” Euro buyers refrain from placing fresh bets on the major heading into the high-impact US data.

USD/CAD moves back and forth in a narrow range at around 1.4350 amid a pause in the Oil price rally and a steady US Dollar. WTI oil price is modestly flat on the day, trading just below $77 as of writing.

Gold price finds fresh demand in the European session, reversing Asian losses to advance toward the $2,700  barrier.