USD, EUR, JPY flows: USD recovers after initial post-CPI dip

US CPI came in on the soft side of consensus, but hasn’t had much persistent impact in the USD. The USD initially lost around 0.5% but has rebounded and is now higher than it was before the data, with US yields also a little higher on the day. To some extent this reflects the more positive risk tone and the consequent reduction in concerns about a US slowdown. The fact that the market is pricing in three Fed cuts already this year makes it hard for US yields to fall further unless we see weak real sector data or significant equity market weakness. Even so, USD/JPY continues to look too high here relative to yield spreads, with the recent rally looking like a mainly technical correction, and we see scope for renewed declines in the coming days.