European currencies dip sharply.

German consumer prices declined 0.8% for January compared with expectations of a 0.3% decline with a sharp decline in the year-on-year inflation rate to 8.6% from 10.0%. This was well below expectations of 9.1% and the lowest reading for five months. The Euro-Zone CPI inflation data is due on Friday.

German bond yields declined with the 10-year yield just below 2.40% from 2.57% at the end of 2022.

US bond yields also declined with the 10-year yield sliding to around 3.73% from 3.85%.

There was notably choppy trading during Tuesday as markets re-opened following the new-year holidays.

Portfolio adjustments at the start of the New Year were a significant element during the day with particularly sharp moves for major currencies.

The dollar posted sharp gains after Tuesday’s European open with a slide in the Euro, Sterling and Swiss franc. The dollar failed to hold the best levels with lower energy prices helping to underpin European currencies.

The Bank of Japan engaged in another round of unscheduled bond buying to cap yields and Governor Kuroda insisted that the bank would continue to ease monetary policy to meet the inflation target.

There were, however, reports that Prime Minister Kishida would review the inflation target with the next bank Governor who is due to take office in April. The yen initially lost ground, but recovered late in the Asian session.

The Federal Reserve will release the set of minutes from December’s policy meeting on Wednesday.

The narrative on inflation and interest rates will be watched closely and have an impact on market expectations.

The latest ISM manufacturing data will also be important for confidence in the US economy with the JOLTS job openings data also due on Wednesday.

The Euro dipped sharply after Tuesday’s market open as liquidity increased. Euro yields also declined sharply on the day. Higher US yields helped the dollar regain ground. EUR/USD dipped rapidly to lows at 1.0520 before attempting to rally. EUR/USD settled around 1.0575 on Wednesday.

There was further very choppy yen trading during the day. USD/JPY found support on approach to 130.00 with resistance close to 131.40 USD/JPY dipped again towards 130.50 on Wednesday.

The Swiss franc lost ground despite a further dip in sight deposits. EUR/CHF advanced to near 0.9900 with strong USD/CHF gains to a peak near 0.9400. The franc recovered some ground on Wednesday with USD/CHF dipping to around 0.9320.

Sterling was subjected to high volatility and hampered by weaker US equities with very choppy trading. GBP/USD dipped very sharply to lows fractionally above 1.1900 before a recovery to near 1.2000 on Wednesday.

Commodity currencies eventually posted net losses on Tuesday in choppy trading. AUD/USD dipped to just below 0.6700 before a tentative recovery. AUD/USD rebounded to above 0.6800 on Wednesday amid hopes for a Chinese recovery. USD/CAD moved above 1.3650 as oil prices retreated and settled just below this level.

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