The U.S. Dollar is trading in mostly familiar ranges across the board as we gauge market reaction to a surprise regarding inflation for suppliers.
Overview
In data released earlier, August Producer Price Index figures came in as a contraction of (-0.1%) instead of the expected advancement of 0.3%. The numbers contrast significantly with July when prices grew by almost three times the expectation. Those previous month statistics were also downwardly revised, meaning that suppliers have not felt as much pain as originally noted. Since inflationary pressures are easing, perhaps the Fed can feel more comfortable cutting interest rates.
Nevertheless, we still have tomorrow’s Consumer Price Index which could reveal that the higher costs experienced by companies may be making their way to regular households. PPI’s annual average went from 3.3% to 2.6%. Thursday’s CPI is expected to show an increase of 0.3%. The odds of the Fed slashing interest rates by 50 basis-points stands currently above 10.0%.
On the geopolitical front, Russian drones had to be downed by Polish military forces after crossing the bordering nation west of Ukraine. Poland is consulting with other EU leaders about a N.A.T.O. response as this represents entering EU airspace. The mood across risk markets however is not one of pessimism as investors look forward to the potential for easing coming soon. There may be some talk about the legality of implemented U.S. tariffs, but it is having no impact on FX movements at the moment.
What to Watch This Week…
- U.S. CPI Tomorrow 8:30AM
- University of Michigan Consumer Sentiment, Friday 10 AM
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇑
The Euro is flat regardless of plenty of developments across the Atlantic that represent some instability. In France, a new Prime Minister, Sebastien Lecornu, was named by President Emmanuel Macron after the ouster of the former one who failed to bring the government in agreement on a budget. The fiscal situation of the country is chaotic, and labor strikes are combining for a difficult period. As the EU parliament returns, legislators are anticipated to be very confrontational while going over the details of the trade deal signed with the U.S. at the end of July. Some members have argued that the agreement solidifies a position of weakness for the continent in the global arena.
Ultimately, the Ukraine-Russia conflict may take a different shape if Poland feels the need to ask for more assistance in preventing the armed conflict from trespassing its borders. Tomorrow, European Central Bank officials are going to keep borrowing costs unchanged, but attention will be paid to ECB President Christine Lagarde and her tone in her press conference.
MXN ⇑
The Mexican Peso is also quiet mid-week after recovering around 1.2% of its value since the beginning of the month. Levels have not changed that much as data in Mexico gives off mixed signals, but the overall trend seems to be similar to that in the U.S. of “stagflation.” Tomorrow, we will get a look at Industrial Production from July, which is forecast to be in negative territory at (-0.9%). A report from Banxico on regional activity is also a possible factor in affecting MXN.
