Forex Today: China’s inflation looms as Lagarde tees up ECB decision

Forex markets have remained subdued since the beginning of the week, with the US Dollar (USD) holding near 99.00 on Tuesday, as depicted by the US Dollar Index (DXY). Geopolitical developments in the Middle East, a jump in energy prices, and rising US yields put inflation data at the forefront, with most investors eyeing Thursday and Friday's PPI and CPI reports in the United States.

Here is what you need to know on Wednesday, September 9:

The DXY, which tracks the performance of six currencies against the US Dollar, is at 98.82, near Tuesday’s opening price, but forming a ‘doji’ candlestick, which signals indecision among traders. On Wednesday, the docket will feature the ADP Employment Change 4-week Average, followed by Thursday’s Producer Price Index (PPI) print, which investors are eyeing.

EUR/USD has finally breached the 1.1600 figure, boosted by overall US Dollar weakness, with the docket remaining light, as traders wait for a speech by European Central Bank (ECB) President Christine Lagarde. The focus will be on the ECB monetary policy meeting on Thursday, with money markets fully pricing in a 100% chance of a quarter-point rate hike.

GBP/USD jumped to 1.3561 before retreating somewhat to around 1.3539, following remarks by Bank of England (BoE) officials. Governor Andrew Bailey said the US-Iran war is pushing energy prices higher, while Megan Greene said that she’s worried about how long Oil prices have remained higher. Alan Taylor supports holding rates “moderately restrictive,” while Dave Ramsden sees the domestic inflation position as relatively benign.  Aside from this, the docket is absent until Friday, when GDP figures are released.

USD/JPY continued to weaken, following a suspected intervention by Japanese authorities, as the pair fell below 153.00 at one point before recovering. Even though US Treasury Secretary Scott Bessent is pushing Japanese authorities to tighten policy, the pair could retest pre-intervention levels in the near term, driven by US inflation data and the close correlation with the US 10-year Treasury yield. Traders' eyes would be on Machine Tool Orders in Japan.

AUD/USD rose to its daily high as RBA Deputy Governor Hauser said that they will debate whether to raise rates at the next meeting. The economic schedule will be absent, though Chinese inflation data could move the needle, ahead of the Aussie Consumer Inflation Expectations for September.

Oil prices, particularly the West Texas Intermediate (WTI), rose to a six -week high on increasing hostilities, with Houthis launching attacks on Saudi Arabia, while investment banks grow worried that the conflict could prolong until 2027.

Gold price edged lower, beneath $4,400 a troy ounce as investors await the release of US inflation figures. Worth noting that, despite being an inflation hedge, a scenario of higher interest rates paves the way for higher bond yields, a headwind for bullion. Hence, the yellow metal is poised to remain within familiar levels, ahead of Friday’s report.