It's Good To Be Back, With The Dollar Gold Shaping Up Before CPI

Hey there,

Dollar:

The dollar pulled back slightly early this morning from a two-year high as traders await key inflation data scheduled to come out later today.

However, the focus remains the plans set by Donald Trump for more trade tariffs, with traders also waiting for an interest rate decision in China and labor market data from Australia for more cues on Asian markets.

The recent weakness in the dollar was mainly due to the softer than expected PPI inflation data released for December. The reading spurred hopes that inflation will ease, giving the Fed more headroom to keep cutting rates,

But certain components of the PPI reading, like PCE Price Index data which is the Feds preferred inflation gauge, read stronger for December, indicating that the underlying inflation likely remained high.

As a result, focus is now squarely on CPI inflation data due later today, for more cues on interest rates. With growing anxiety that sticky inflation will keep U.S interest rates high for longer, especially after the Fed warned of a slower pace of rate cuts this year.

Gold:

Gold has made steady gains, while traders keep to the sidelines ahead of CPI data later today. The recent gains in Gold came from softer-than-expected PPI inflation data which spurred some hopes that inflation will ease further in the coming months.

However, in spite of the steady gains Gold still remains rangebound as safe haven demand remains limited, while the prospect of slower interest rate cuts by the Fed also weighed on the outlook.

Higher interest rates is not good for non-yielding assets like Gold, because it increases the opportunity cost of investing in them