USD is following real rates with direction to be determined by tomorrow’s inflation number
Source: www.tradingview.com
The markets have likely been running on the blowout non-farm employment change (NFP) released on 3rd Feb (orange dashed vertical), over any Fed communication. This suggests a heavy reliance on data and tomorrow we get the CPI at 1:30 pm GMT.
Since the NFP, the US 10-year real rate has appreciated bringing FXCM's USDOLLAR basket with it. The correlation coefficient between the two is a significant 85%.
Source: www.tradingview.com
A weaker than expected core CPI will pressure real rates and the greenback. It is currently at 5.7% and its acceleration is extremely close to dropping below zero (green rectangle). A drop below will put it firmly in deceleration territory, which is needed to reach the Fed's inflation target of 2% average.
An upside surprise will thwart this. Markets will turn even more bearish and see capital rotation towards safety.
Russell Shor
Senior Market Strategist
Russell Shor is a Senior Market Strategist at FXCM, having been promoted to the role in 2025 in recognition of his depth of insight and consistent delivery of high-impact market analysis. He originally joined FXCM in October 2017 as a Senior Market Specialist.
Russell holds an Honours Degree in Economics from the University of South Africa, is a certified FMVA®, and a full member of the Society of Technical Analysts (UK). With over 20 years of experience in financial markets, his work is renowned for its clarity, precision, and strategic value across asset classes.
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