US Dollar: Inflation data guide blackout repricing – BNY

BNY’s Geoff Yu notes that strong U.S. payrolls have lifted September Fed hike odds back toward 60%, leaving rate expectations highly data-dependent as the Fed enters its blackout. With inflation now in focus, August Consumer Price Index (CPI) will be pivotal in determining whether markets reinforce or unwind renewed tightening expectations.

Inflation prints steer Fed expectations

"Last week’s upside surprise in U.S. payrolls – with nonfarm payrolls (NFP) at 162,000 vs. the expected 55,000 – pushed market-implied odds of a September Fed hike back up to around 60% from 50%, underscoring how much rate expectations remain tethered to the data backdrop."

"With the Fed now entering its two-week communications blackout, the focus of this holiday-shortened week will be squarely on inflation data."

"The most important release this week is CPI, particularly the core measure, as it will shape whether last week’s jobs strength is interpreted as confirmation of resilient underlying demand or as an isolated labor-market outlier."

"A firm print across both would likely reinforce the case for a September hike and could extend the recent backup in short-end rates."

"By contrast, a softer CPI would give markets room to fade some of the renewed tightening odds, especially with the Fed sidelined and unable to steer the narrative."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)