Daily Market Pulse
Dollar Rebounds Ahead of Tomorrow’s US CPI Print
5 minute readUSD
After yesterday's 0.5% decline, its worst day since July 13, the US Dollar Index is rebounding this morning as markets react to this morning's batch of Eurozone and UK data, as well as some minor US reports.
The US NFIB Small Business Optimism Index fell to 91.3 in August, below market expectations, with 23% of small business owners citing inflation as their top concern. Additionally, expectations for future conditions over the next six months declined significantly, indicating growing pessimism among small business owners due to inflation and a worker shortage.
US CPI for August is coming up tomorrow at 8:30 AM EST, and markets expect headline inflation to accelerate to 3.6% annually and 0.6% monthly.
EUR
The Euro is down 0.3% this morning, erasing yesterday's gains following the latest investor sentiment and inflation figures across the Eurozone.
The Eurozone ZEW Indicator of Economic Sentiment declined to -8.9 in September, below expectations, while the indicator for Germany improved to -11.4, surpassing market expectations. It was the fifth consecutive month of a negative read for both indicators.
Meanwhile, Spain's annual CPI reached a three-month high of 2.6%, mainly driven by a resurgence in transportation prices, particularly due to increased fuel and lubricant costs for personal vehicles. On the other hand, Germany experienced its fifth consecutive month of declining wholesale prices, down by 2.7% year-on-year in August.
GBP
As traders digest this morning's UK employment figures, the British Pound is down 0.3% on the day, negating its 0.35% gain from yesterday.
The UK unemployment rate increased to 4.3% between May and July, the highest level since Q3 2021, with 159K more unemployed people. Employment levels fell by 207K, the most significant drop since October 2020, primarily driven by a decline in full-time self-employed workers.
However, wages showed significant growth, with average weekly earnings, including bonuses, rising by 8.5% year-on-year, marking the highest increase in two years, while regular pay (excluding bonuses) increased by 7.8%, the highest annual growth rate since records began in 2001.
JPY
Following its strongest single-day performance since mid-July, the Japanese Yen is pulling back from its one-week high this morning as the Dollar regains its footing ahead of tomorrow's US CPI print.
Looking ahead to this evening, Japan's PPI read for August is on the docket at 7:50 PM. Producer prices are projected to have risen 3.2% year-on-year, cooling from the 3.6% seen in the previous read and marking the eighth straight month of slowing price growth. On a monthly basis, market consensus points to a 0.1% increase in prices for August, matching the July print.
CAD
The Loonie is trading sideways this morning after gaining over 0.5% against the Greenback yesterday, its largest daily gain since July 13. Today's pullback is mainly because of a rebound in the Dollar ahead of tomorrow's US CPI print, as the Canadian calendar is empty today.
Meanwhile, oil prices are back in the green this morning. WTI futures are retesting a ten-month high ahead of key OPEC and US EIA market reports set for release later today.
Next up on Canada's economic calendar is the final read of July's wholesale sales report, set for release on Thursday.
MXN
After seven straight losing sessions, the Mexican Peso rebounded off its three-month low in a big way yesterday, surging 1.7% against the Dollar on the heels of strong industrial output data out of Mexico. However, MXN is pulling back this morning as risk appetite subsides, limiting demand for LATAM currencies.
According to a Reuters report, some analysts believe the Mexican government's plan to run a significant budget deficit in 2024 could strain public finances and potentially impact its credit rating while also raising concerns about inflation and the need for fiscal reform in the future.
BRL
The Brazilian Real is inching lower this morning, failing to build momentum after yesterday's 1.1% rally. Today's pullback comes amidst renewed US Dollar strength as traders also assess the latest inflation numbers out of Brazil.
In August, Brazil's annual inflation rate increased to 4.61%, slightly below market expectations but marking the second consecutive monthly rise from a recent low of 3.16% in June, which raises concerns about an inflation resurgence in the economy and how that may impact the BCB's easing strategy. Notable acceleration drivers include significant jumps in transportation, housing and utilities prices.
CNY
The Chinese Yuan is slightly lower this morning after soaring over 0.8% versus the Greenback in the offshore market yesterday. The rally was supported by an aggressive PBOC fix in the onshore market, the news that Chinese authorities would scrutinize all bulk US Dollar trades, and support from state banks that dumped US Dollars to prop up the Yuan.
Looking ahead to Thursday night, China's latest industrial production, retail sales, housing index, and unemployment rate are all set for release alongside the PBOC's one-year MLF rate decision, making for a potentially volatile end to the week for CNY.
