Investors lock gaze on US inflation data

Will the US CPI data alter dovish Fed bets?

The US dollar traded lower against most of its major peers, gaining ground only against the yen and the pound, with individual stories from Japan and the UK weighing on those currencies rather than the dollar receiving fuel.

Although dollar traders are closely monitoring headlines regarding trade talks between the US and China, they are likely to lock their gaze on the US CPI data for September today, which will be released delayed amid the ongoing US government shutdown.

Bearing in mind that the prices subindex of the ISM non-manufacturing PMI rose slightly in September, the risks of the CPI numbers may be tilted to the upside. Indeed, the Cleveland Fed CPI Nowcast model points to a 3% y/y inflation rate, slightly above August’s 2.9%, while the forecasts for Friday’s report suggest that the headline rate rose to 3.1% y/y from 2.9% and the core rate remained unchanged at 3.1%.

Therefore, sticky inflation, especially if accompanied by decent S&P flash PMI readings later in the day, could lead investors to temper their aggressive rate cut bets and thereby prove positive for the US dollar. According to Fed funds futures, investors agree with the Fed’s latest dot plot that two more quarter-point cuts may be needed for this year, but they foresee another three for 2026, while the Fed projected only one.

Pound and yen stay wounded, euro bounces on flash PMIs

The pound remained on the back foot even after retail sales for September beat estimates by large margins. It seems that the miss in the CPI numbers is still being digested by traders, who are now pencilling in an 80% chance of another 25bps BoE rate cut by the end of the year.

The euro rebounded somewhat after the flash S&P Global PMIs for October came in better than expected, reducing the likelihood of a contingency rate cut by the ECB.

The yen continued tumbling as Takaichi’s stance on monetary policy had investors questioning whether the BoJ will hike again before the turn of the year, although the acceleration in the National CPI prints today supports the case of another rate increase.

Stocks gain amidst US-China optimism and solid earnings

On Wall Street, the three main indices closed in positive territory yesterday, with the Nasdaq gaining 0.89%. Although US President Trump said that all trade talks with Canada were terminated following what he called a fraudulent advertisement, investors remained focused on the US’s relation with China.

The White House confirmed that President Trump will meet his Chinese counterpart Xi Jinping next week, allowing investors to add to their risk exposures. Upbeat earnings results are also celebrated by market participants. So far, more than a quarter of the S&P 500 companies have reported results, with 86% of those beating analysts’ forecasts.

Wall Street futures and Asian shares are also in the green today due to increasing risk appetite and after Intel’s results after the New York close beat estimates.

Gold resumes slide, oil stands tall after sanctions on Russia

Gold rebounded on Thursday, but it is pulling back again today perhaps as investors are showing more interest to risk assets, even though they remain convinced that the Fed will proceed with more rate cuts than its own dot plot suggested. Data pointing to accelerating US inflation could push the metal lower, but with central banks around the globe, including China, still piling up reserves, calling a bearish reversal may be premature.

Oil prices extended their rally yesterday, surging around 10% since rebounding on Tuesday, as the US administration announced sanctions on major Russian oil companies Rosneft and Lukoil due to Russia’s war in Ukraine.

Although prices stabilized somewhat near the key resistance territory of $63.00, the decision from China and India to suspend Russian oil imports keeps concerns of supply shortages elevated, which could result in recovery extensions.