Contrary to yesterday’s dud reaction to the Producer Price Index, the United States Dollar is finally on the front foot this morning across the G10 board after the US Consumer Price Index for September came in slightly above expectations.
Overview
The Dollar Spot Index is up roughly three tenths of a percent on the news and the Buck is gaining against all G10 currencies. This morning’s release showed that inflation in the US struck in at 3.7% on expectations of 3.6%, and core inflation (excluding food and energy) was 4.1% last month. It’s important to note that while this is the same full reading as August’s inflation data, this still marks a substantial uptick from the low numbers of early summer. June’s inflation came in at 3.0%, so the increases of the last three months are leaving the Federal Reserve in the lurch.
Though risk sentiment across the world will likely continue to be dampened for some time on continuing conflict in the Levant, it does appear that markets have chosen a narrative that they’d like to follow and are trading within that narrative. Traders would prefer to pay attention to US exceptionalism rather than geopolitics at the moment, so good data from the US – if it can continue through the Fed’s meeting November 1 – is likely to drive FX pricing for the remainder of the month. Volatility has been high as a result of Middle East tensions, yes, but traders appear to be treating the newest developments as “just another brick in the wall.” It remains unclear if USD’s losing streak over the last week is the start of a larger downtrend for the Buck, but watching intraday trading today may give us some clues. If the Dollar can hold on to this morning’s gains, the market’s prevailing narrative of Dollar dominance may remain intact.
What to Watch Today…
GBP ⇓
Pound Sterling is taking fairly heavy losses against USD this morning to the tune of 0.4% after US CPI re-heated up. Even a slightly positive GDP reading out of the UK couldn’t stem the bleeding. The UK is clearly still teetering on the brink of a recession, and warning signs flashed once again as industrial and manufacturing production both contracted on a monthly basis. Inflation, as well, remains quite hot in the nation, but the Bank of England has signaled it might be done hiking interest rates on the grounds the larger economy cannot take it.
AUD ⇓
Australia and New Zealand Dollar are losing versus the Dollar in tandem this morning, with the Kiwi taking the brunt of it, after US CPI contrasted sharpy with continuing doom and gloom sentiment on the state of the Chinese economy. The Antipodean currencies remain quite vulnerable to volatility strikes, and China’s espoused propensity toward involvement in the newest iteration of conflict in the Levant doesn’t exactly reassure markets that the currencies are headed toward calmer waters.
