FX markets calm (and the yen weak again) ahead of US CPI

The US dollar looks set to end the week broadly unchanged against most currencies, with its renewed strength against the yen being the key exception. Next week’s CPI data release out of the US could break the calm that has prevailed in FX markets over the past couple of weeks. Given the recent negative turn in economic data surprises there and the net long “speculative” positioning in the greenback, our sense is that the dollar is likely to reverse some of its gains over the coming weeks.