Currency markets are treading water this morning, with most majors turning in a mixed performance against the dollar ahead of Thursday’s all-important US inflation print. Treasury yields are moving in almost-imperceptible ranges, equity bourses are mostly flat, and the commodities complex is advancing incrementally as the session proceeds. The Canadian dollar is holding steady, but appears to be building a foothold that could support gains later in the week if US price growth subsides in line with expectations.

Japan’s yen is trading on a more solid footing after Tokyo consumer prices jumped 4 percent year-over-year in December, topping market forecasts and raising uncertainty levels ahead of next week’s central bank meeting. Inflation in the world’s biggest city is running at its fastest levels since 1982, with underlying price pressures beginning to broaden even as imported food and energy costs soften. Few expect the Bank of Japan to respond by raising its yield curve cap again before the end of current Governor Kuroda’s term in April, but updated projections could illustrate a shift in how policymakers see the causes and likely duration of this round of price increases. If the central bank’s “transitory” view of inflation shows signs of eroding, yields will push upward and the yen could snap higher.

UK retail sales – as measured by the British Retail Consortium and KPMG – rose 6.5 percent December relative to a year earlier, but the gain lagged price increases, meaning that volumes fell in real terms. The pound climbed modestly on the release, and appears to be gaining more broadly as traders move past “peak pessimism” toward a more normal level of depression.

The euro continues to move higher as fears of an economic calamity subside. A warmer-than-expected winter and soaring gas stockpiles are helping reverse a continent-wide energy price shock, the prospect of a recovery in Chinese demand is lifting manufacturing sentiment, and the European Central Bank’s relative hawkishness is triggering a reversal in capital flows. Position data from last Tuesday shows speculators are sitting on relatively large positions, and commentary from the major trading centre banks remains unremittingly positive.

In less than half an hour, Federal Reserve Chair Jerome Powell will have an opportunity to confront the easing in financial conditions that has taken place in recent months. Mr. Powell is due to appear on a panel at the Riksbank’s symposium in Stockholm, where he will take questions from an audience that will be looking for insight into the central bank’s evolving reaction function, and for his thoughts on Friday’s surprisingly-benign jobs data. In comments yesterday, the San Francisco Fed’s Mary Daly and Atlanta’s Raphael Bostic said the Fed should raise rates above 5 percent and hold them there for a “long time” to ensure that inflation is well and truly beaten. We will push an update to your email boxes if he says anything momentous.