Dollar tumbles after disappointing US data

Concerns about an incoming economic slowdown have hit markets, while continued hawkish rhetoric by Fed speakers has added to negative risk sentiment.

• Asian stocks have traded mixed with most major indices rangebound following the negative handover from Wall Street.
• The dollar had a choppy session yesterday on the back of the BoJ meeting and softer data and is in the red to kick off this morning’s session.
• Gold is trying to hold onto to recent highs and remains above $1900.

Weak US economic data spurred further speculation that inflation is peaking, and policymakers may be nearing the end of their hiking cycles.

US retail sales fell more than expected, industrial production declined and US PPI also slid more than forecast.

But while slowing inflation has been a positive for markets, worries about slowing economic growth have started to bite as well.

This did actually push the DXY to new cycle lows below 102 on more dovish Fed rate expectations, with the May lows also offering immediate support to the benchmark US dollar index, for now.

A further capitulation in dollar bulls could invite bears to push the DXY into sub-100 levels.

BoJ seen to bow to the inevitable

The yen has reversed nearly all its losses from yesterday’s spike higher in USD/JPY, even after the BoJ defied hawkish speculation yesterday that it would widen its yield curve control band further.

Policymakers are seen eventually changing or abandoning the YCC policy when Governor Kuroda steps down in April after he laid the groundwork in December with only the third change to the yield cap in seven years.

That window when he hands over the baton of the BoJ governing board may herald more extreme volatility in the yen.

USD/JPY has been at the forefront of the broad dollar decline since October.

Intervention helped near the highs just shy of 152. Easing US CPI prints, especially in November saw huge moves to the downside.

The upper part of the long-term descending channel, with its series of lower highs and lower lows, was nearly touched yesterday on the spike high after the BoJ meeting, only to be repelled by USDJPY’s 21-day simple moving average (SMA).

But the sharp about-turn looks strongly bearish with funds loading up on long yen positions in anticipation of more BoJ policy changes going forward.