Forex markets were relatively quiet again overnight as traders sat on their hands ahead of this afternoon’s US CPI release, delayed from 15th October. This update does have the capacity to boost FX volatility, particularly as it will be the first official US government release since the shutdown began at the beginning of this month.
Headline CPI, which includes food and energy, is expected to rise to 3.1% year-on-year from 2.9% previously. Core CPI is forecast to come in unchanged from last month at 3.1%. Both will therefore remain well above the Fed’s 2% inflation target. Yet the US central bank has made it clear that it is more concerned about a weakening labour market than inflation.
Consequently, the CPI would have to come in way above expectations to have any impact on the Fed’s interest rate decision next week. According to the CME’s FedWatch Tool, the probability of a 25-basis point rate cut is 98.9%. The Dollar Index continues to hover below 99.00, a level which has acted as resistance throughout this month.
Source: TN Trader
Aside from this, the Canadian dollar sold off after President Trump called off trade talks. This followed the broadcast of a ‘misleading’ advert produced by the Canadian province of Ontario, which showed footage of former US President Ronald Reagan criticising tariffs.
Meanwhile, the Japanese yen came under further selling pressure as Japan’s National CPI ticked up towards 3%. The USD/JPY is now closing in on highs seen earlier this month around 153.00, soon after Sanae Takaichi’s unexpected win to become leader of Japan’s ruling LPD party. She has just become the country’s first female Prime Minister.
