USD mixed ahead of CPI – Scotiabank

The US Dollar (USD) is trading mixed against the major currencies ahead of this morning’s key data round, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD steady to slightly firmer ahead of expected gain in inflation

"The Pound Sterling (GBP) (on better than expected jobs data) and the Swiss Franc (CHF) are outperforming amongst the core majors. The Euro (EUR) and Japanese Yen (JPY) are slightly softer while the Australian Dollar (AUD) is underperforming following the as expected RBA cut (-25bps to 3.60%) earlier. Governor Bullock indicated that a “couple more” cuts might be required in this cycle. Stocks are steady to slightly firmer while Treasurys are more or less flat and Gilts are underperforming."

"US CPI lands at 8.30ET and may help shape FX trading over the balance of the week. The data is expected to show a 0.2% M/M rise in July headline prices and a 0.3% M/M gain in core CPI. That will nudge the headline rate up to 2.8% Y/Y and the core rate to 3.0% (from 2.7% and 2.9% respectively). Inflation remains pernicious—a Bloomberg’s “Cheeseburger Index” reflects persistent price gains so far this year, suggesting heightened pressure on low-income households—but the Fed may have to balance that against signs that the US labour market is slowing as it considers its policy settings in September (where swaps reflect around 85% risk of a 25bps cut)."

"Firm inflation data will give the USD a mild lift but a downside miss on the data is likely to have a more significant, negative impact on the dollar overall. Ever buoyant stocks are liable to react poorly to higher inflation which reduces the risk of Fed easing , however. Beyond the data we get comments from the Fed’s Barkin (non-voter, hawk) and Schmid (voter, hawk). Monthly Federal budget data are released at 14ET. Japan releases PPI data for July this evening. The DXY made a little progress on the chart yesterday to reach the mid-98 area where the market has stabilized so far today. Support remains 98.05. Resistance extends to 98.70/80."