Market Update: US Dollar Pauses Rally Ahead of CPI Report
As the Trump trades-inspired broader market rally takes a breather, all eyes are on the upcoming US Consumer Price Index (CPI) report, set to be released during American trading hours. Here’s a breakdown of what you need to know:
Key Points:
- The US Dollar (USD) is taking a pause in its recent uptrend, along with US Treasury bond yields, as traders lock in profits on their long USD positions ahead of the US inflation data release.
- The CPI report is crucial in determining the Federal Reserve’s (Fed) monetary policy direction, with markets currently pricing in a 62% chance of another 25 basis points interest rate cut in December.
- President-elect Trump’s policies on trade and taxes are viewed as inflationary, leading to expectations of higher interest rates and providing support to the USD against its major counterparts.
- Market sentiment remains cautious due to ongoing concerns about China’s economy and anticipation of the US CPI data release.
Currency Movements:
- USD/JPY: Trading near 105.00, the pair is at its highest level since July 30, with Japanese verbal intervention and uncertainty over potential Bank of Japan (BoJ) rate hikes weighing on the yen.
- AUD/USD: Consolidating below 0.6550, the pair is facing downside pressure from risk-off sentiment in the market.
- NZD/USD: Struggling above 0.5900 as investors move away from risk assets.
- USD/CAD: Reclaiming 1.3950 amid subdued WTI oil prices.
- EUR/USD: Testing the 1.0600 support level after hitting a yearly low at 1.0594, driven by German political uncertainty and policy divergence between the Fed and ECB.
- GBP/USD: Remaining vulnerable near 1.2740, following mixed UK labor data and ahead of a speech by BoE policymaker Catherine Mann.
Commodity Market:
- Gold: Holding a modest bounce above $2,600, near two-month lows, as traders await US CPI data and speeches from Fed officials for the next direction in the precious metal.
Stay tuned for further updates as the market reacts to the US CPI report and other economic developments.