Forex: Can CPI Follow PPI’s Lead?

In early Friday trading, the markets are relatively static as they wait, in anticipation, for today’s US inflation data that will potentially give confirmation that the FOMC will hike interest rates in December. According to the latest CME Fed Watch tool, there is an 88% probability of a rate hike in December. Thursday’s release of US PPI for September showed producers experiencing a 0.4% increase, in line with expectations, after a 0.2% increase in August. With producers experiencing inflation, the markets will now be looking at today’s CPI to see if such inflationary pressures are reaching consumers. It is, however, important to note that these particular data releases are likely to be “skewed”, as the US economy is still being impacted by Hurricanes Harvey and Irma.

The US Labour market is showing more resilience as Thursday’s Initial Jobless Claims from the US Labour Department showed a better than expected decline of 15,000 to 243,000 for the week ended October 7th – better than many had forecast. With fewer Americans seeking unemployment benefits (i.e. more in full-time employment), many expect this fact to also put more inflationary pressure on the US economy and provide more confirmation to the Fed that they can raise rates.

EURUSD is holding steady in early trading, currently at 1.1850.

USDJPY is 0.2% lower overnight, currently trading around 112.05.

GBPUSD is little changed overnight. Currently, GBPUSD is trading around 1.3275.

Gold is trading 0.25% higher, currently trading at $1,296.

WTI benefitted from the recent EIA data gaining 0.25% overnight. Currently, WTI is trading around $51.20.

Major data releases for today:

At 15:30 BST, the US Census Bureau will release Retail Sales (MoM) for September. Consensus is calling for a strong release of 1.7% compared to the previous release of -0.2%. If the release is >1.7% the markets will expect to see USD buying, as it will add to confirmation for a rate hike by the Fed before Year End as consumers are spending more and therefore adding to upward inflationary pressure.

At 15:30 BST, the US Bureau of Labor Statistics will release Consumer Price Index (YoY) and (MoM) for September, along with CPI ex Food & Energy, Core and n.s.a. Annualized CPI is expected to come in at 2.3%, a healthy improvement from the previous release of 1.9%. Month-on-Month CPI is also expected to come in higher at 0.6% from the previous release of 0.4%. As an inflationary indicator, releases above the expected will see USD appreciate.

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