Forex Today: US dollar sagging over Fed expectations

Here is what you need to know in forex for Thursday 16 Sep:

The US dollar was pressured on Wednesday in what might have been a delayed reaction to the prior day's inflation numbers. The UK's and Canada's inflation data came in hot by comparison on Wednesday, bringing to light the prospects of convergence between the pace of economic recovery across the pond and between other central banks. 

Markets are getting prepared for next week’s FOMC meeting, with US economic data failing to boost conviction in the reflation trade at the moment. So far, we have had poor outcomes in both the labour market conditions, CPI inflation and industrial production numbers for August. 

Short-term expectations about tapering of asset purchases from the Federal Reserve are mixed as a consequence. The dollar index, DXY, last stood at 92.50, down about 0.20% on the day from Tuesday, when it dropped following the inflation data but then recovered on haven demand as stocks slid on Wall Street.

On the contrary, the CAD and GBP were bid on a higher than expected Consumer Price Index. Consumer prices in Britain rose by 3.2% in annual terms last month. This was the biggest monthly jump in the annual rate in at least 24 years, largely due to a one-off boost reflecting the "Eat Out to Help Out" scheme that pushed down restaurant meal prices last year,'' Reuters reported. UK employers also added a record 241,000 staff to their payrolls last month. 

Canada's annual inflation rate accelerated to 4.1% in August, its highest since March 2003, boosted in part by a big jump in gasoline prices. USD/CAD was down 0.52% at 1.2625 after trading in a range of 1.2624 to 1.2708 the high. Sterling rose 0.23% versus the dollar at $1.3834 by the close, but it was off the 5-week high of 1.39.13 against the dollar touched on Tuesday.

The commodity complex, on the whole, was higher and AUD, as well as NZD, were both ending the session marginally better off. ''The move has coincided with a turn in equity sentiment and higher bond yields, and in that sense, it looks like a classic “risk-on” jump, albeit a very mild one,'' analysts at ANZ Bank said. 

Elsewhere, WTI prices rose to $73.11/bbl as US inventories run low and storms disrupt US production. Gold dipped 0.6% to $1,790/oz. The S&P 500 was up 0.85% and the Dow Jones was also up 0.68%. BTC/USD was nearly 2% higher despite warnings from Dalio that expects regulators to 'kill' bitcoin if it becomes too successful. 

For the day ahead, first up, New Zealand Gross Domestic Product for the second quarter. ''We expect that this data will cap off what was an incredible run of positive data, in a June quarter where unemployment fell to 4% and annual CPI inflation reached 3.3% – above the RBNZ’s 1-3% target range,'' analysts at ANZ Bank said.

''We’ve pencilled in a 1.2% q/q lift in production GDP, which would see annual growth come in at 16.2% – but that’s mostly due to the very weak base from lockdown in 2020. We’re expecting that growth was also pretty broad-based across primary, goods, and services industries.''

Thereafter, we have Aussie Employment data. ''Employment likely fell in August but less than consensus. While job vacancies have declined, they remain at a very high level, hinting at resilience in labour demand,'' analysts at TD Securities said. 

''Moreover, we think fiscal support is likely to partly offset some job losses as the adjustment to the labour market occurs through reduced hours worked (as seen in July), and not job losses.''