The US dollar was slightly firmer ahead of the US CPI release. Support came from a tech-led risk-off mood and from the dollar looking cheap versus other G10 currencies.
Markets were expected to react less to CPI than they did to the payrolls report. The Federal Reserve has also signaled it is not in a hurry to cut rates again.
January CPI was expected to meet consensus: 0.3% month-on-month and 2.5% year-on-year for both headline and core. This was expected to confirm the recent, more hawkish repricing in Fed expectations.
Short-term undervaluation was seen as a factor that could lift the dollar in the coming days. However, recent trading suggested investors have been selling into USD rallies, limiting the room for a broader rebound.
The recent selloff in US tech was viewed as supportive for the dollar, as it pointed to returning safe-haven demand.
The USD was described as cheap against most G10 currencies. Even so, medium-term bearish sentiment was still seen as a reason for sellers to use rallies as selling opportunities.
The dollar is getting a small boost ahead of the January inflation report, helped by a mild pullback in tech. The Nasdaq 100 is down about 3% from its late-January highs, which has pushed some money toward the dollar as a relative safe haven. This support may be short-lived, but it is helped by the dollar looking inexpensive versus other major currencies.
We expect the Consumer Price Index to show inflation easing to 2.5% year-over-year, in line with consensus. Last week’s jobs report showed 225,000 new jobs, which has already led markets to reduce expectations for a March rate cut. Fed funds futures now price less than a 20% chance of a cut next month, which supports the dollar for now.
This setup may create chances to sell into any post-CPI dollar rallies. One approach is to sell call options or use bear call spreads on the U.S. Dollar Index (DXY) at higher strikes, such as 105.50. This position benefits if the dollar’s strength fades, as we expect the medium-term downtrend to reassert itself.
A similar pattern appeared across much of 2025: dollar rallies tended to fade because the Fed’s easing cycle was the main story. The Fed cut rates three times in 2025 and is now on hold, but the broader bias for the dollar still looks lower. That backdrop suggests the current firmness is more likely temporary than the start of a sustained move.
Because the market has been more focused on jobs data, implied volatility in major pairs like EUR/USD has fallen ahead of CPI. That can make short-term options (such as weekly straddles or strangles) relatively cheap. These trades can profit if the market moves more than expected in either direction.
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