[MARKET ANALYSIS] DXY treads water into US CPI, JPY underperforms and briefly topped 159.00 as Takaichi eyes a snap election

• DXY is flat and trades within a narrow 98.89 to 99.03 range; the high for the day is a couple of pips short of its 50 DMA, while a bout of pressure in the index could see a test of its 200 DMA at 98.80.
• Focus for the index today will be on US CPI; in brief, the consensus looks for headline CPI to rise by 0.3% M/M in December (prev. 0.3%), and the annual rate to remain unchanged at 2.7% Y/Y. GS expect the figures to exceed consensus, citing firmer food and energy prices.
• Data aside, trade headlines have recently garnered some attention; 1) Trump said any countries doing business with Iran will be subject to a 25% tariff on all dealings it does with the US, 2) US is nearing a deal with Taiwan, which would incl. a commitment from TSMC.
• Away from the US, G10s are mixed with mild strength in the GBP whilst the JPY is the clear underperformer – other peers are near-enough flat vs the USD. Nothing really driving the strength in the GBP this morning, whilst the JPY has a lot to digest.
• A full JPY analysis piece can be found on the Newsquawk headline feed at 08:55 GMT, but in brief, USD/JPY eclipsed 159.00 for the first time since 11 July 2024. As a reminder, Japan intervened twice on July 11 and 12 to bring the USD/JPY below the 160.00 mark. The latest depreciation in the JPY has been spurred by continued reports of PM Takaichi's plans to call an election, where her aim is to secure a single-party government. This would, in theory, allow her to enact more expansionary fiscal policy.

The DXY remains steady as traders await the upcoming US CPI data, with expectations for a 0.3% monthly increase and an unchanged annual rate. This could impact market sentiment towards inflation and the likelihood of changes in monetary policy, particularly if the figures exceed consensus, as Goldman Sachs predicts. Meanwhile, the JPY underperforms amid political uncertainty with PM Takaichi potentially calling for a snap election, which could influence future fiscal policies and the currency's value.