US DATA: Slightly Softer Than Expected Import Prices In January

• Our calculations suggest the share of the entire CPI basket growing in excess of 3% Y/Y fell to 28% from 32% in Nov, leaving it at its lowest since Mar 2020. It’s almost back in line with the 24% in 2019 but still a little above the longer-term average of 19%.
• The >2% Y/Y share meanwhile held steady at 38%, still comfortably below the 48% in 2019.
• Splitting into core items, core goods shares remain subdued with just 12.5% of the basket growing >3% Y/Y.
• Core services were more notable though, with the >3% Y/Y share pushing to 58% after two stubborn months at 66-68%. It’s through September’s 61% for the lowest since Jan 2022 but remains above pre-pandemic averages (38% 2019, 34% longer term). 

Dovish repricing in the U.S. short end on the back of the slightly softer-than-expected round of core and supercore CPI data.

• The hawkish repricing that followed last week’s NFP release has been fully reversed, with Fed Funds once again pricing ~40bp of cuts through year-end.
• The hawkish move topped out at ~23.5bp of cuts on Monday.
• The next 25bp cut is fully discounted through the July FOMC vs. the September FOMC ahead of the CPI data.

• The softer data weighing on the greenback helps USDJPY extend its intra-day trend to print fresh session lows of 156.25. We noted 156.02 as the nearest support level, with the renewed optimism for equities potentially helping the pair off the lows in most recent trade.
• Boosted risk sentiment has helped the likes of AUD and NZD to outperform at the margin, rising over 0.5%, while GBP extends its post-UK CPI reversal to briefly print 1.2301, a prior breakdown point for the pair.
• The euro has relatively underperformed, only managing to print a 1.0354 high before sliding 30 pips, up just 0.2% on the session. This has weighed on EURGBP, which now returns to levels just above 0.84 from the prior 0.8463 highs.