DXY: Short-covering lifts USD into weekend - Scotiabank

The US Dollar (USD) is trading higher on the day overall, with yesterday's big winner, the JPY, this morning's big loser after Japan's January headline CPI reflected the anticipated pick up to 4.0% Y/Y, Scotiabank's Chief FX Strategist Shaun Osborne notes.  

USD steadies ahead of the weekend

"Core inflation quickened a little more than expected but the JPY is subject to profit-taking and position adjustment as investors dial back risk ahead of the weekend when who knows what social media post might drop. The JPY is still looking at a decent (1.25%, at writing) gain on the USD over the week. Just how far the USD can strengthen remains to be seen. My guess is not that far."

"US Treasury Sec. Bessent commented Thursday that markets 'live in the future' and that USD appreciation since the presidential election would suggest that 'some' tariff risk is already priced into FX. Markets remain generally constructive on the USD outlook as tariff risks linger but delays and reprieves mean that USD gains likely exceed what tariff action has already been implemented (just additional tariffs on China) by quite some margin."

"It will be some weeks (perhaps early April, I think) until we get more clarity on how and where tariffs are going to hit. The USD may only strengthen more meaningfully thereafter if the US imposes broad and aggressive tariffs on its trade partners. In the interim, sliding volatility--the broader measure of G7 FX vol has dropped back to its lowest (around 8%) since the late summer--suggests FX will idle in choppy, rangey trade and markets will be more inclined to fade USD rallies."