BUZZ-COMMENT-Dollar path remains higher in lead up to CPI

Feb 11 (Reuters) - Despite the dollar trading marginally softer, downside is likely limited ahead of the January CPI print. As previously highlighted, risks to the data lean in favour of a topside surprise. In turn, risk-reward looks unfavourable for dollar shorts heading into the data.

Alongside this, U.S. yields have also begun to trudge higher, where the benchmark 10-year is back above 4.5%, which should put a floor under the greenback in the short-term.

That said, it is worth pointing out that the bigger reaction would likely stem from a downside surprise than a hotter print. This is because U.S. short term interest rates are only pricing in 35bps worth of policy easing for 2025 from the Federal Reserve by year-end, with a cut not fully priced until September.

Consequently, there is room for a dovish repricing should we see weaker inflation figures which by extension would weigh on the greenback.

Aside from the data, the latest tariff updates remain broadly supportive for the dollar. However, this may be harder to discern given the tepid dollar response to the recent tariff headlines, a sign that markets may be fatigued and thus hampering conviction levels in the FX space.

Equally, the 25% tariffs on steel and aluminium will not come into effect until March and thus, while market participants judge that there is room for negotiations, it is unlikely that President Donald Trump will do as he did with Mexico and Canada and delay these tariffs. For now, the path remains higher for the dollar leading into CPI.

For more click on FXBUZ