The US dollar index hedged down during early Tuesday trading, as the markets await the release of US inflation data later in the day. The way consumer prices behaved in August matters, as it is the last batch of important US data to be released before the Federal Reserve meets next week, to decide on its monetary policy. It is widely expected that the American central bank will raise interest rates by 75 basis points – an intention that has been telegraphed well in advance by several FOMC members when speaking in public. The move has also been priced into the value of the dollar and the confirmation of the rate hike next week is unlikely to significantly affect the value of the greenback in relation to other currencies. The only room for surprise would come from an unexpectedly low inflation number today – a scenario that would give the Fed some food for thought and could create some downside for the dollar.
Ricardo Evangelista – Senior Analyst, ActivTrades
Share markets continued to trade higher on Tuesday, registering modest gains as traders start bracing for today’s highly awaited US CPI figures.
Most EU indices were in the green while Treasury markets dipped across the old continent after risk appetite found more support following reassuring inflation data from both Germany and Spain this morning.
However, today’s “star of the show” is likely to be found on the other side of the Atlantic with the US CPI release due later in the afternoon.
A slight decrease from 8.5% to 8.1% is now widely anticipated, while the core CPI data isn’t expected to show any significant change.
Of course, a higher than estimated number would be seen as bad news for riskier assets, as it could trigger an even more aggressive monetary policy from the Fed.
On the other hand, a lower figure than initially expected would be likely to have a positive impact on market sentiment, but in the short-term only.
Indeed, even if inflation continues to slow down in the US, the Fed isn’t likely to bring significant changes, such as a halt to its rate hike cycle, on the near-term basis.
Furthermore, there is a high chance today’s positive CPI data has already been priced in, while investors still struggle to assess how long the hawkish stance from the Fed will last. This may bring a short to mid-term downside risk to stock markets, especially as prices already trade close to significant resistance levels.
Pierre Veyret– Technical analyst, ActivTrades
Disclaimer: opinions are personal to the authors and do not reflect the opinions of LeapRate. This is not a trading advice.