Almost every measure of US inflation, other than headline CPI, is rising again. Where do we go now? Kit Juckes, Chief Global FX Strategist at Société Générale, believes that investors should get ready for choppy, more than trending, FX markets.

CPI shock, a Fed peak reprice, but not necessarily a huge dollar rally

“The dollar got a lift, but I don’t think this latest surge can take us very far. The market has pushed up pricing of terminal Fed Funds by almost 50 bps in a week, to above 4%, but the US Dollar Index is pretty much here it was a week ago.”

“It still seems more likely that EUR/USD, GBP/USD and most of the major crosses settle for a period of choppy range-trading, with volatility staying elevated, rather than we see the start of a new dollar uptrend.” 

“The yen, however, is likely to remain very difficult to trade. A verbal intervention campaign seems to have begun but a change in monetary policy doesn’t seem imminent.”