MUFG Research sees the FX market trading in a tight range until the release of the US CPI print for the month of January on next Tuesday.

"With the OIS curve already priced for two additional 25bp rate hikes there was no catalyst for a move higher in rates which propelled the dollar weaker. The rates market is unlikely to consider the prospect of a more notable shift higher in the terminal rate (from 5.00% - 5.25%) until there is some compelling economic data to justify it. Obviously that potential will not now come until next week when we get the January CPI report. Powell yesterday again reiterated that the “disinflation process” is under way and hence only a change in view on that would alter market pricing over the shortterm,"MUFG notes. 

"But the momentum and positioning in the markets and the communication from the Fed suggests a far larger market move to an upside surprise in the CPI data than to a downside surprise. With no other top tier data until then, it seems likely the US rates and FX markets will trade in relatively tight ranges," MUFG adds.