USD falls ahead of US CPI data – Daily Market Brief, September 13, 2022

The US dollar falls, and US futures rise as investors look ahead to the US inflation data, which is expected to show that consumer prices cooled again in August.

·         GBP rises & FTSE is flat after mixed UK jobs data

·         EUR & DAX edge higher ahead of German ZEW economic sentiment

·         Cooler inflation data could help gold build on recent gains

Renewed optimism surrounding the Ukraine war and falling European natural gas prices boosted sentiment, helping European stocks end Monday’s session higher. Investors brushed off a weaker than hoped-for rebound in UK GDP.

Wall Street also booked another positive close, its fourth straight day of gains. Energy and technology shares helped the main indices reach two-week highs as Apple jumped 4% and risk on dominated ahead of today’s inflation data.

While US CPI is, without doubt, the key focus for today and, more broadly, for the week, there are several data points in Europe beforehand.

UK labour market data

UK unemployment unexpectedly fell to 3.6% in the three months to July, down from 3.8% and the lowest level in 48 years, as more people dropped out of the workforce. Meanwhile, employment increased by 40,000 in the same month, below the 125,000 forecast. Job vacancies also declined by 34,000 from the previous quarter, the largest decline since summer 2020.

The data suggest that the labour market remains tight, but weakness is slowly starting to seep in. Meanwhile, wages excluding bonuses rose by a larger than expected 5.2%, a figure the BoE will no doubt be watching closely ahead of the MPC meeting next week.

Following the data, GBP/USD trades 0.2% above 1.17, while the FTSE is set to open flat.

German ZEW economic sentiment

German economic morale is expected to deteriorate again in September after falling to its lowest level since the depths of the financial crisis in August 2008. Stubbornly high inflation and elevated energy prices are expected to weaken profits in the private sector, which has been dragging on sentiment. The ZEW economic sentiment figure carries a lot of weight in the industry and is considered a leading indicator and is forecast to fall to -60 in September, down from -55.3 in August.

EUR/USD is holding onto recent gains, rising over 1.0150. Meanwhile, the DAX is set to open 0.2% higher on the open as it heads towards 13,500.

US CPI

US inflation cooled to 8.5% YoY in July, down from 9.1%. While investors got ahead of themselves, speculating that the Federal Reserve could slow the pace of rate hikes, Fed Chair Jerome Powell set investors straight with his hawkish rhetoric at Jackson Hole. This stance was reiterated only at the end of last week before the pre-FOMC blackout period started.

August CPI is expected to be 8% YoY, slowing for a second month. However, this would still be four times above the Fed’s 2% target, and given that the Fed has been vocal about preferring to front-load rate hikes, it appears unlikely that the Fed will shy away from the priced-in 75 basis point rate hike next week.

However, cooler inflation is likely to raise bets that the Federal Reserve will slow the pace of rate hikes to 50 basis points or less in the final two FOMC meetings of the year. This optimism has driven the recent rally in stocks and the decline in the USD.

The US dollar index has fallen across the past five sessions, dropping from its record high of 110.55 on Tuesday last week to its current level of 108.10.

The weaker USD helped Gold gain across last week, its first weekly rise in a month, and the precious metal extended the bullish run to a high of 1735 yesterday. Today, Gold is holding steady ahead of the inflation data. Cooler inflation could help Gold build on these gains.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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