Petr Krpata, an FX strategist at ING, notes that both the U.S. January CPI and the Fed Chair Jerome Powell’s speech yesterday underlined the positive outlook for cyclical FX for upcoming months, particularly in early Q2.

"While US CPI pressures are present in the US and inflation is set to rise, they don’t show signs of being out of control, in turn allowing the Fed to stay cautious and fully stick to the AIT framework."

"This was reiterated in Chair Powell’s speech which, rather than focusing on prospects of a fast recovery and the risks of overheating, focused on the struggling labour market, the associated downside risk and the need to keep monetary policy ‘’patiently accommodative.’’ This means that any shift in the policy stance (to a hawkish, less accommodative side) is not imminent, US front end rates are to remain anchored, the US curve is set to steepen further and real rates are to remain deeply negative."

"As the global economy starts its post-winter recovery in Q2, this suggests more upside to cyclical currencies, while negative US real rates should also offer to help hands to the low yielding ones, such as EUR vs the dollar."