Fed dovish pivot expectations shift to 1Q 2024 as the November US CPI shows resilience

The foreign exchange market is churning today, with several key currencies experiencing volatility as investors digest the latest economic data and anticipate upcoming central bank decisions. Gold, the safe-haven asset, is feeling the heat after the release of US inflation figures, which reinforced expectations that the Federal Reserve won’t rush with the much anticipated dovish pivot, preferring instead to leave this risk for 1Q 2024 meetings. This has boosted the US Dollar against a basket of currencies, while the UK Pound is under pressure following disappointing economic data. Meanwhile, the Japanese yen is finding limited support despite improved business confidence as risk-on sentiment prevails.Gold Price Stumbles After US Inflation DataGold prices are struggling this Wednesday, losing recent gains after the release of US inflation figures. While the 0.1% MoM increase was in line with market expectations, the annual figure of 3.1% suggests that inflation pressures in the US economy remain stubborn. This has somewhat provided a floor for the USD, making gold a little bit less attractive as a hedge against inflation.Fed Policy In Focus, USD Holds FirmThe US Dollar Index is hovering around 103.80, buoyed by the Fed's anticipated policy stance. While the central bank is widely expected to keep rates unchanged this week, market players are pricing in an 80% chance of a rate cut by May. This has pushed US Treasury yields lower, but the USD remains supported in anticipation of the Federal Open Market Committee’s (FOMC) meeting and Chair Jerome Powell's comments.UK Economic Data Dampens Pound SentimentThe British Pound has taken a tumble after data revealed a sharper-than-expected contraction in UK GDP in October. This, coupled with a slowdown in wage growth (7.2% actual vs. 7.7% exp.), has fueled concerns about the country's economic outlook. Investors are now looking towards the Bank of England's monetary policy meeting on Thursday, hoping for clues about a potential shift towards a dovish stance.JPY Struggles Despite Improved Business ConfidenceThe Japanese yen is facing headwinds despite the release of positive Tankan survey data, which showed improved business confidence among large manufacturers. The prevailing risk-on environment is undermining the JPY's safe-haven appeal, while traders are also awaiting the Bank of Japan's monetary policy decision next week.All Eyes on Fed and BoJ MeetingsThe global forex market will remain fixated on central banks this week, with the Fed's policy decision and Chair Powell's press conference taking center stage today. The focus will be on the updated economic projections and any hints about the future path of interest rates. Investors will then turn their attention to the BoJ's meeting next week, seeking clarity on the future of the central bank's negative interest rate policy.Overall, the forex market is navigating crosscurrents as investors weigh the latest economic data and central bank policies. While the US Dollar is finding support from the Fed's hawkish stance, the Pound and Yen are facing headwinds from their respective economic challenges. The upcoming central bank meetings will be crucial for determining the future direction of these currencies and the broader forex market.