[MARKET ANALYSIS] Choppy FX trade with DXY giving back early gains on EUR upside after hotter French and Spanish CPI

• DXY is choppy but ultimately softer following subdued APAC trade amid mixed sentiment, whilst the tone in Europe is tentative. Modest downticks in the index were seen as the EUR strengthened following the hotter-than-expected French CPI data (more below). Aside from that, newsflow in the European morning has been on the quieter side as USD traders gear up for US PPI data later in the session - expected to rise +0.3% M/M (prev. 0.5%), while the ex-energy/food/trade measure is seen rising +0.1% M/M (prev. +0.4%). Elsewhere, construction spending for December, and the Chicago PMI for February are due. In energy, Baker Hughes will publish its weekly rig count data. DXY resides in a current 97.611-97.824 range at the time of writing, within Thursday’s 97.489-97.984 parameter.
• EUR/USD eked mild gains after oscillating around the 1.1800 focal point overnight, with a more convincing move above the level seen after the hotter-than-expected French and Spanish Prelim CPI metrics. EUR/USD resides in a 1.1789-1.1822 range awaiting the German Prelim CPI later today, where German regional CPIs will likely preview the nationwide metric, whereby the M/M is expected to tick higher to 0.5% from 0.1%, and Y/Y seen cooling to 2% from 2.1%.
• GBP/USD languished near the 1.3500 level following the prior day's underperformance owing to credit concerns, and with overnight price action contained after UK GfK consumer confidence fell to its lowest level that was last seen in November. Overnight, UK journalists focussed on the Gorton and Denton by-elections in which the Green party won, with Reform second and Labour third. With Labour losing a seat they held for almost 100 years, UK PM Starmer's leadership could be at risk. Nonetheless, GBP/USD saw little reaction to the results announcement, and currently resides in a 1.3461-1.3507 range, after finding support at its 200 DMA (1.3442) yesterday. Ahead, BoE’s Chief Economist Pill is due to give some remarks.
• USD/JPY retreated amid the early subdued risk appetite and following a slew of data, including Tokyo CPI, which printed firmer-than-expected across the board, but slowed from the previous with Core inflation back beneath the BoJ's price goal. The pair pared back some losses as the DXY recouped some overnight losses. USD/JPY trades in a 155.54-156.12 range vs yesterday’s 155.70-156.43 parameter.
• Antipodeans rebounded from the prior day's trough and narrowly outperform in the European morning, but with further upside contained by the mixed risk appetite and amid a weaker CNH, which was pressured after the PBoC actions to slow currency appreciation, in which it cut the FX risk reserve ratio to 0% and set a weaker-than-expected CNY fix by maintaining it at the prior day's level

The DXY's recent softness reflects mixed sentiment in global markets, particularly influenced by stronger-than-expected CPI prints from France and Spain, which have bolstered the EUR/USD. Traders are now looking ahead to US PPI data, as the USD's trajectory could shift based on inflation dynamics. With this volatility, the focus remains on how the upcoming economic data will impact currency valuations, particularly against the backdrop of mixed risk appetite.