The dollar held its ground after the US CPI report yesterday here. It was a bit of a mixed one with some emphasis on the monthly core rising. But again, it just serves to rebuff expectations for a 25 bps rate cut next week. That rather than a 50 bps move and market players had to tone down their expectations on that. The odds of a 50 bps rate cut next week plunged after the data, now down to ~13%.
As mentioned, the dollar was a beneficiary as bond yields also bounced. USD/JPY in particular caught a modest bid and is pushing back up now to around 142.70 on the day. That comes as 10-year Treasury yields nudge back up to 3.66% from around 3.61% yesterday. But perhaps more importantly, 2-year yields held the line here.
The report yesterday is a good reminder that while inflation has died down quite a bit, it’s still a process in the making. It serves as a starting point for the Fed to move by 25 bps this month. And it’s also a reminder that market pricing can get carried away at times. Think back to the six rate cuts priced in for 2024 in December last year.
Coming into today, the immediate focus and attention now turns towards the ECB. However, it’s not one to really surprise considering the circumstances leading up to the policy decision. For some background: The ECB meets later this week, what to expect?
A 25 bps rate cut is all but confirmed and if Lagarde plays it right, there shouldn’t be too much volatility in the aftermath.
Instead, US data later on in the day might offer more for markets. We will have the weekly initial jobless claims and then the PPI data.
The reaction yesterday is helping to keep things in check on the week. Although, stocks look to be poised to try and pull higher again thanks to Nvidia’s nudge up yesterday.
0700 GMT – Spain August final CPI figures
1215 GMT – ECB announces its September monetary policy decision
1245 GMT – ECB president Lagarde press conference
That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.