ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner say the Dollar is modestly supported into US CPI, helped by a tech-led risk-off tone and short-term undervaluation versus G10 peers. They expect January CPI to match consensus, reinforcing recent hawkish repricing in Federal Reserve expectations, but still see medium-term bearish sentiment encouraging selling into USD rallies.

Greenback supported but rallies sold

"Today’s US CPI report is likely to have a smaller market impact than Wednesday’s payrolls. The Federal Reserve has been signalling little urgency to cut again, and it’s mostly the jobs market that can move the needle."

"Incidentally, we don’t expect surprises in January’s inflation. We are aligned with consensus on a 0.3% month-on-month/2.5% year-on-year print for both headline and core CPI. That should endorse the latest hawkish repricing in Fed expectations, which has brought the dollar further into short-term undervaluation."

"That undervaluation argues – in our view – that the balance of risks is tilted to the upside in the coming days for the greenback. However, the price action of this week strongly suggests an inclination to sell the USD rallies, and we struggle to see the dollar recover substantially from here."

"One slightly encouraging development for the dollar is the seemingly positive reaction to the latest round of US tech selloff, and an indication that some safe-haven value has been restored."

"The tech selloff appears to be offering the dollar some support, suggesting that a degree of safe‑haven value has been restored. The USD is currently cheap against most G10 currencies; however, medium‑term bearish sentiment may still encourage selling into rallies."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)