USD weakens as soft CPI triggers equity rally, impacts major FX pairs

The US dollar index fell 0.8% to 106.50 as softer-than-expected CPI data sparked a broad risk-on rally across markets. November CPI came in at 2.7% YoY, below the 2.9% forecast, while core CPI matched expectations at 3.3%. The data reinforced expectations for a Fed rate cut at today's FOMC meeting, with markets now pricing in a 97% probability of a 25bp reduction. Major forex pairs responded sharply, with EUR/USD climbing 0.6% to 1.0520 and GBP/USD advancing 0.7% to 1.2780. The softer inflation print has shifted near-term dollar sentiment negative, with technical indicators showing the DXY breaking below its 50-day moving average at 106.80. Traders should monitor the Fed's dot plot projections for 2025, which could either amplify or reverse current USD weakness depending on the hawkishness of future rate guidance.