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The dollar correction

We’re at something of an inflexion point with the dollar. Although we’ve seen a very strong rally in the wake of the US presidential election vote, there has only been a marginal correction into the end of last month. The moves seen in the past few sessions have largely eroded that correction, both on the dollar index and USDJPY standing less than 0.5% below the highs for the year. The release of minutes to the December FOMC meeting this evening are not likely to add much to the mix, given the message that emerged from the press conference and the projections released at the time that suggested a further three interest rate increases from the Fed this year. The cluster of responses around this were fairly evenly balanced. For the dollar to push ahead from here, we’d need to see the Fed follow through on these anticipated hikes, but also for Trump’s bullishness on the economy to start to come to fruition. Ford shares have surged on the cancellation of a planned investment in Mexico, with some of those savings said to be ploughed back into the US manufacturing sector.

For today, we’ve got December CPI Data in the Eurozone, released at 10:00 GMT, where a further push to 1.0% is seen on the headline rate. The core rate is seen steady at 0.8%. In the UK, the sand-storm around Brexit continues, with the surprise resignation of the UK’s ambassador to the EU. Whilst there has been no discernible currency impact from this, it is a reminder that there remain deep divisions and frustrations across government and beyond. Elsewhere there are more noises in China regarding the level of the yuan and the extent of outflows being seen. The currency has held up pretty well in the face of the strong dollar, at least compared to other Asian peers, but reserves data and other indicators suggest this is part down to the efforts of the authorities to put a floor under the currency.

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