The highlight of today will be US CPI data which is forecasted to rise at an annual pace of 2.9% in January, a bit softer than the 3.4% increase that was reported in December. This inflation report is key in providing some clues as to the timing of any Fed policy movement.

The number was just released at 8:30am and came in stronger than expected at 3.1%. The USD is higher across the board now and reversing any pullbacks it may have had yesterday and earlier in the European session. The possibility of a rate cut in March now seems highly unlikely. Dow futures are down 300 points now prior to the open. Treasury yields have popped higher.

EUR/USD was up very small on the day prior to CPI pushed along by better-than-expected economic sentiment data from the eurozone and Germany. Comments from ECB Executive Board member Piero Cipollone indicated that there may not be a need for the ECB to further restrict demand in its efforts to address inflation, suggesting that interest rates might not need to be raised further.

GBP/USD jumped higher on the day due to strong upbeat UK labor data and higher wage growth. The data showed growth in average earnings was higher than expected allowing the BoE to maintain a hawkish narrative. Hiring from UK employers remained strong as business owners are optimistic about the economic outlook due to receding recession fears, easing price pressures, and hopes of rate cuts.

USD/CAD is trading higher on the day helped along by the strong CPI number. This breaks a 5-day declining trend. Upbeat crude prices could provide some support for the Canadian dollar moving forward. As geopolitical tensions escalate with reports of Yemen’s Houthi rebels launching missiles at a ship bound for a port in Iran, the West Texas Intermediate (WTI) oil price inches higher to $77.00 per barrel.

USD/MXN has snapped a 2-day losing streak and is up on the day. Banxico maintains its outlook that inflation will reach its 3% target by 2025. Governor Ceja remarked, “The inflationary environment has evolved, and the current situation differs significantly from what we experienced in 2022, even in the initial months of 2023.” She affirmed that the central bank would base its decisions on a range of factors and data, including actions taken by the US Federal Reserve.”