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By XE Market Analysis December 13, 2017 3:25 pm
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    XE Market Analysis: Asia - Dec 13, 2017

    The dollar dropped early on, as core CPI was cooler than expected. The unit stayed down into the FOMC announcement, and fell after the as-expected 25 basis point Fed rate hike, then quickly headed above levels just prior to the announcement, before dipping again. EUR-USD popped to 1.1796 from 1.1770, then headed to 1.1766 lows before heading over 1.1800. USD-JPY meanwhile, fell from near 112.90 to 112.65 before topping at 1.1314, then falling under 112.70. Wall Street maintained gains, while yields slipped slightly after initially shrugging off the announcement. The statement noted that headline and core inflation had declined this year, which may have provided the weight on the dollar.

    [EUR, USD]
    EUR-USD topped at 1.1770 after the softer core U.S. CPI, and maintained altitude into the FOMC announcement. The pairing bottomed at 1.1767 after the Fed, then topped at 1.1825. The euro will likely remain in sideways mode into Thursday's ECB meeting. Given the strong incoming EU data, risk from the meeting may be to the hawkish side. Calls for Draghi to finally commit to an end date for QE are getting louder, as are warnings that the ECB's policy may remain too accommodative as the output gaps closes faster than anticipated.

    [USD, JPY]
    USD-JPY fell from 113.37 highs to 112.95 following the cooler core U.S. CPI outcome. The pairing steadied on either side of 113.00 into the FOMC announcement, before chopping around immediately following the statement, and as-expected 25 basis point rate hike. Despite indicating another 3 rate hikes in 2018, the Fed remains concerned over soft inflation, which was the likely cause of USD-JPY's drop to 112.50 lows.

    [GBP, USD]
    Cable edged out an intraday high at 1.3377 early in N.Y. trade, aided upward today by a general softer dollar in the wake of the U.S. CPI release, then later topping at 1.3429 after the FOMC announcement. The BoE's policy announcement promises to be a non-event for markets. Brexit-related uncertainty still prevails, despite last week's breakthrough on divorce terms, as we're still non-the-wiser as to what Brexit will look like -- whether a hard exit or a soft exit -- as the political backdrop has become highly convoluted in the UK.

    [USD, CHF]
    EUR-CHF has seen volatile price action over the last couple of weeks, having turned lower after several attempts above 1.1700. There have been multiple failures to sustain gains above 1.1700 over the last month, and market participants will be wary of supply above this level. We still remain bullish over the medium term, however, assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable future (the central banks meets on policy on Thursday).

    [USD, CAD]
    USD-CAD recovered from its post-CPI dip to 1.2822, topping at North American highs of 1.2878 in morning trade. Softer oil prices, despite inventory draws reported by API and EIA, supported the pairing, while bigger picture, the BoC's cautious guidance following its policy meeting last Wednesday should keep a floor under USD-CAD going forward. The pairing slipped to 1.2792 lows after the FOMC announcement, as the greenback overall dipped on the Fed's noting that inflation declined this year.

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