The U.S. Dollar is in mixed ranges after the release of the core consumer price index (CPI) data, which showed a 3.2% increase from the previous year, marking the slowest pace since early 2021.
Overview
The monthly CPI rose by 0.2%, slightly higher than June’s figures. This data led to market speculations about the Federal Reserve’s potential rate cuts, with swap traders pricing in a 40 basis-point reduction in September and over 105 basis points for the year. The Dollar remained near a four-month low amidst these expectations.
An early reaction survey of market analysts provided varied insights on the implications of the CPI data for the Fed’s decision. Some believe that further negative data on the labor market before the September meeting could lead to a more aggressive 50 basis point cut, while others anticipate a more cautious 25 basis point reduction. The consensus is that the Fed’s policy will be influenced by a collection of data points rather than a single report, and the CPI figures align with the expectations for a rate cut in September. The debate continues on whether the cut will be by 25 or 50 basis points, with the Dollar’s movements reflecting the market’s anticipation of the Fed’s next steps.
There is still some data to chew tomorrow with Retail Sales as well as Industrial Production. Focus on Jobless Claims could move the needle if something outrageous is released. Friday closes out with Housing as well as Construction gauges while also providing us the University of Michigan Consumer Sentiment.
What to Watch Today…
- U.S. CPI, Friday
- U.K. GDP Thursday
- U.S. Retail Sales, Industrial Production Thursday
- Monex USA Online is always open.
MXN ⇑
The Mexican Peso has shown remarkable resilience, bouncing back from recent downturns. Despite a volatile market environment, the Peso has managed to trim its losses, bolstered by the latest US economic data which has favored risk assets. This uptick has positioned the MXN as a strong performer among its Latin American counterparts, currently up by 0.4%. However, it’s important to note that the Peso is still navigating through a depreciation trend, trading below its 50-day moving average.
Investors remain vigilant as global events continue to influence market dynamics. The heightened tensions in the Middle East, particularly the brewing conflict between Iran and Israel, are causing ripples across financial markets, affecting oil prices and global inflation expectations. With Mexico’s economic calendar looking light this week, international factors will likely steer the Peso’s intraday trajectory.
NZD ⇓
The “Kiwi” dropped by over 1.0% this morning after some dovish monetary action. The Reserve Bank of New Zealand’s unexpected rate cut to 4.25% has led to a sharp decline in the NZD/USD and bond yields, signaling a potential recession with negative growth anticipated in the upcoming quarters. The market is pricing in further rate cuts, with projections showing a decrease to 4.9% by year-end, contrasting the 5.6% forecast in May. This trend is echoed globally, with central banks in Canada, the UK, and Europe also lowering rates, and the US expected to follow, all aiming to support economic recovery without keeping rates high for too long.
The RBNZ’s aggressive stance is part of a global shift towards lower interest rates in response to slowing economies, with the NZD weakening against major currencies and swap rates reaching a two-year low. The Reserve Bank of Australia, however, is maintaining its current rates, diverging from the RBNZ’s approach.
