USD/CAD pair jumps following release of US CPI data

Key Movers

The US dollar held its ground amid mounting pressure this week. The release of US inflation data aligned with the Federal Reserve's cautious approach to monetary policy, validating their decision to maintain current interest rates and await additional data before considering rate cuts. The CPI inflation data was released at 0.3% in December, accelerating the year-over-year rate of 3.4%. This surpassed market expectations for a 0.2% rise. Furthermore, traders closely analyzed Jobless Claims figures. Despite the slowdown in disinflation, the job market remained strong, with Initial Jobless Claims remaining unchanged despite expectations of an increase.

The Euro experienced a decline in the wake of higher-than-expected US CPI figures, indicating a reduced probability of an imminent Federal Reserve rate cut. The EUR/USD pair traded at 1.0952, reflecting a 0.23% decrease.

The GBP underwent a significant sell-off due to a notable impact on market sentiment following the US CPI data release. The pound's future movements will likely hinge on the upcoming release of UK factory data on Friday. Despite optimistic remarks from UK Finance Minister Jeremy Hunt about the economy not being as dire as revised Gross Domestic Product (GDP) numbers for the 3rd quarter imply, risks of a technical recession persist. The Bank of England (BoE) predicted a stagnant performance in the last quarter of 2023.

The AUD/USD pair dropped under the 0.6700 mark, recording a loss of 0.30%. The increase in the US CPI numbers led to expectations of a more accommodative stance from the Fed, contributing to the decline. Despite the downturn, the potential for further downside in the pair is constrained, given the elevated likelihood of a Fed rate cut in March.