All Eyes on US Inflation, Again

However, the trends from previous days remain intact – stocks are up, metals are up, and the dollar is sharply lower.

Moreover, German ZEW surveys for September, expected to decline again, are the only major macro release during the EU session.

Inflation in focus

German consumer prices increased by 0.3% month over month in August, easing from the previous month’s 0.9% increase, but the annual rate rose to 7.9% from 7.5%.

Later today, the US CPI for August is due, likely causing severe volatility in the financial markets.

Due to declining energy and commodity prices from their heights, expectations are for the headline CPI to drop but for core prices to continue trending higher.

As a result, the market presently sees the likelihood that the Federal Reserve will increase its benchmark interest rate by 75 basis points at its policy meeting next week to be about 90%.

Nevertheless, economists at MUFG Bank expect a weaker-than-expected report to trigger a more profound correction lower for the greenback.

“The hawkish repricing of European Central Bank rate hike expectations is helping to narrow policy divergence with the Fed and offering more support for regional currencies against the US dollar, although we have not connived that it will prove sufficient on its own to trigger a more sustained reversal lower for the US dollar,” they said today.