Most Asian shares rose on Tuesday in cautious trading following the mixed performance from Wall Street overnight as investors braced for a key US inflation report. European markets were mixed ahead of the Germany ZEW survey expectations this morning. Looking at currencies, the yen remains stuck near a three-decade low against the dollar despite jumping in the previous session on speculation of government intervention. Sterling received a slight boost after average weekly earnings beat forecasts this morning. Although the dollar remains rangebound, the incoming US inflation data, string of significant economic data this week, speeches by numerous Fed officials, and the threat of a potential US government shutdown could rock the currency.
Dollar on standby ahead of CPI
The October US Consumer Price Index (CPI) report may heavily influence expectations around the Fed’s policy outlook beyond 2023.
Headline inflation is expected to have cooled to 3.3% compared to 3.7% in the prior month due to falling global energy prices, with annual core inflation unchanged at 4.1%, its lowest level since September 2021. As of writing, traders are currently pricing in just above a 25% probability of a 25-basis point hike by January 2024 with markets expecting the Fed’s first rate cut in July.
Ultimately, further evidence of cooling inflationary pressures may reinforce the argument around the Fed being done with hikes, despite recent hawkish remarks from central bank officials. However, if inflation prints above forecasts, this could boost speculation around the Fed raising rates in the early part of 2024.
