Sticky US inflation could make dollar strength more durable Sticky US inflation could make dollar strength more durable Sticky US inflation could make dollar strength more durable

Sticky US inflation could make dollar strength more durable

Forex 6 minutes to read
Charu Chanana

Head of FX Strategy

Summary:  Hot US January CPI has closed the door for a March Fed rate cut. While PCE data will be more important, the debate has shifted to May or June for the start of Fed’s easing cycle, unless banking risks escalate. This has made dollar strength more durable as risks of SNB and ECB rate cuts ahead of the Fed could gain traction.

US January CPI came in above expectations, both on the headline and core measures. The hot inflation print disrupted the disinflation narrative and reaffirmed that the last mile of the inflation move to 2% could be bumpy.

Headline rose 3.1% YoY and 0.3% MoM, vs. 2.9% and 0.2% expected respectively. Core was steady at 3.9% YoY vs. an expected easing to 3.7% YoY, and rose on a MoM basis to 0.4% from 0.3% in December. Most of the upside surprise came for shelter, where a waiting game has been going on to see cooling in rents. Other major contributors to the upside were airline fares, medical care and education. Overall, sticky services inflation contributed significantly and the supercore measures that the Fed focuses on (see chart below) rose to 0.9% MoM, the highest level since April 2022.

While it is concerning that services inflation may be accelerating again, it is not surprising given the sticky trends seen in labor markets and wages. Goods disinflation has continued for now, but that has mainly come on the back of energy prices, while food prices also came in higher. What is even more concerning is that base effects in energy are coming to an end, and this could make inflation even more sticky from here.

The hot CPI report has priced out a March rate cut, now seen with only 10% odds. May rate cut probability has also dropped to less than 40% from ~70% previously and the first full rate cut is only seen in June.

Source: Bloomberg

Focus now turns to PPI report on Friday which could help to gauge what Fed’s preferred inflation measure PCE could come at. PCE has been trending lower than the CPI, and we could continue to get mixed messages on inflation. However, bigger picture encompassing the blowout January NFP report, recent jobless claims prints, and the Fed pushback to Q1 rate cut expectations means that the bar to price in a March rate cut again is very high, and the May rate cut expectations may also continue to be challenged.

While data-dependency is the order of the day, debate following the US January CPI report will also shift once more to “who cuts first”. The Fed was expected to lead the rate cut cycle this year as it usually does, but market pricing has shifted now and both ECB and Fed are expected to start cutting rates in June. ECB is still seen to cut in April with close to 50% probability, while the Fed’s May odds also stand at less than 50%. Commentaries from ECB speakers have also started to diverge, with some like Bank of Italy Governor Panetta saying that ECB will soon need to start cutting rates. The Bank of England, so far, is expected to delay the easing cycle as services inflation and wages remain sticky but there remains risk of dovish repricing if growth metrics undershoot expectations. Swiss CPI yesterday came in below expectations, and Swiss National Bank is now seen cutting rates as early as March.

The competitive pivot argument will likely be alive once again, and is likely to create interesting tactical opportunities in the FX space. Dollar strength appears to be more durable, and downside is seen for CHF and JPY. EUR and GBP also remain on data and commentary watch, with UK wages still remaining sticky, having come in higher than expected at 5.8% YoY for December, but still cooling significantly from 8%-levels seen last summer. Gold has broken below $2,000 support on hot US CPI and is testing 100DMA at $1,990.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.