Midweek Overview Markets started the day in a holding pattern, with minimal overnight movement as participants awaited key U.S. CPI data. While some regional developments offered early signals, it was the U.S. inflation report that drove meaningful activity later in the session. Key highlights include:

Market Overview

• UK Inflation Weakness: All measures of U.K. inflation came in lower than expected, leading to increased bets on potential Bank of England rate cuts. Despite this, GBP/USD ("cable") saw limited movement, remaining mostly unchanged ahead of the U.S. CPI release.
• Dollar-Yen Weakness: The yen appreciated significantly, with USD/JPY falling 1%. Comments from Bank of Japan Governor Ueda and his deputy bolstered expectations for a potential rate hike, driving the move.
• U.S. CPI at 2.9%: Headline U.S. CPI matched expectations at 2.9%, a 0.2% increase from the prior month. While the number itself was in line with forecasts, the sub-3% reading has kept hopes alive for rate cuts from the Federal Reserve in 2025.

Currency Highlights

• EUR/USD (+0.25%): The euro appreciated modestly against the U.S. dollar following the CPI release, benefiting from broad dollar softness.
• GBP/USD (+0.65%): Sterling gained traction after the U.S. inflation data, reversing earlier weakness following the U.K. inflation report.
• USD/CAD (-0.25%): The Canadian dollar strengthened against the U.S. dollar, reflecting post-CPI movements and a steady oil market.

Looking Ahead

With U.S. CPI now behind us, markets will shift focus to other economic indicators and global central bank commentary. The subdued nature of U.S. inflation supports ongoing speculation about potential rate adjustments from the Federal Reserve, which will remain a key driver of currency markets in the near term.