The U.S. Dollar has shown mixed performance as stock futures fell and bond yields rose following the latest inflation reading, which revealed a surprise acceleration in consumer prices.
Overview
The core Consumer Price Index, which excludes food and energy costs, increased by 0.3% from July and 3.2% from a year ago, indicating underlying inflation pressures. This data has led to a cautious market sentiment, with S&P 500 futures dropping by 0.5% and the yield on 10-year Treasuries advancing by two basis points to 3.66%. The dollar wavered as traders assessed the implications of the inflation data on the Federal Reserve’s interest rate decisions. Key events this week, including the ECB rate decision and U.S. initial jobless claims, will be closely watched for further insights into the Fed’s policy trajectory.
The Buck’s moves for the better make sense following ongoing price growth and the subsequent decline of bets that a 50-basis-points cut is coming. The Interest Rate Probability has those odds at just 16.0%. Traders are also keeping an eye on geopolitical risks and economic data releases elsewhere, such as Japan’s Producer Price Index and Eurozone Industrial Production, which could impact the dollar for the remainder of the week.
What to Watch Today…
- European Central Bank Decision Thursday
- Monex USA Online is always open.
EUR ⇓
The Euro is mostly flat now while experiencing heightened volatility as traders adopt a neutral stance ahead of the European Central Bank policy decision. One-day volatility for the Euro/USD pair has risen to its second-highest level this year, reflecting market uncertainty. While a quarter-point interest rate cut is fully priced in, the October pricing keeps volatility elevated. Traders are also being cautious, with risk reversals turning bearish for the Euro further out, influenced by potential disruptions from the upcoming U.S. elections. The ECB’s decision and subsequent market reactions will be crucial in determining the Euro’s trajectory this week before plenty of data to chew arrives mid-month.
MXN ⇑
The Mexican Peso climbed by over 1.0% from its close yesterday but is surely expected to weaken following the approval of a controversial reform bill by Mexico’s senate. The bill, which makes all judges electable, has raised concerns among investors about its potential impact on foreign companies and the risk of a power grab by the ruling Morena party or organized crime. Despite the Peso’s initial knee-jerk strengthening reaction, it remains under pressure and may fall further. The Peso has struggled to break a significant resistance point despite the negativity over the county’s steadfast political activity. When it comes to Mexico’s fundamentals, July figures for Manufacturing and Industrial Production surprised with 1.6% and 2.1% expansion, respectively, when estimates even had July coming in as a contraction.
