The US dollar is stable as traders await key inflation figures due out today. The Consumer Price Index (CPI) for September is scheduled to be published at 8:30 AM New York time, or 1:30 PM London time. Headline CPI, analysts are forecasting 0.4% m/m and 3.1% y/y. This is an increase from August when the CPI came in at 2.9%.
The core CPI is expected to be up 0.3% M/M. It will cool down to 3.1% y-o-y, core, non-seasonally adjusted (meaning without the volatile food and energy prices). According to the gubernatorial projections, inflationary pressures remain high. This raises the question of how the Federal Reserve plans to get back to their target inflation rate of 2%.
US inflation remained sticky in September, according to market observers. How this continued pressure factors into the Fed’s monetary policy decisions in the weeks ahead remains to be seen.
US September CPI (1:30 PM London, 8:30 AM New York) and October PMI (2:45 PM London, 9:45 AM New York) take the spotlight today. – BBH FX analysts
The anticipated release of the University of Michigan sentiment index for October, set for 10:00 AM New York time, could influence market reactions. This week’s Kansas City Fed service index comes out one hour later. This additional data might add some useful context about where economic sentiment is landing with consumers and businesses right now.
Even as the dollar pushes up against this week’s highs, it continues to do so within an extremely narrow trading range. Analysts highlight that despite the dollar seeming strong right now, longer-term trends are feeding into a dollar volatility storm coming soon.
“Watch-out for super core services CPI (less housing), a good indicator of underlying inflation trends.” – BBH FX analysts
This widespread measure notched a year-over-year increase of 3.2% in August, the second straight month of growth. This trend is deeply concerning, focusing fears on the Fed’s ability to progress toward its inflation goals. Despite these concerns, analysts note that “upside risks to prices are not materializing,” which provides some leeway for the Fed to consider a follow-up rate cut next week.
“USD fundamental downtrend is intact.” – BBH FX analysts