Another Soft US Inflation Report, But Energy Costs in the Spotlight

US CPI rose 3.2% y/y, slightly weaker than the 3.3% y/y expected. Core inflation slowed to 4.7% y/y, although analysts, on average, were looking for it to maintain its 4.8% y/y pace.

Cliff Notes: Consumers Yet to Feel Relief

Despite the RBA leaving policy unchanged for a second consecutive month, Westpac-MI Consumer Sentiment fell by 0.4% in August. At 81.0, the headline index suggests extreme pessimism remains firmly entrenched, with confidence at levels only seen during periods of major economic dislocation over the survey’s near fifty-year history.

Swiss Franc Eases Ahead of Swiss Inflation Report

The Swiss franc has extended its losses on Wednesday. In the North American session, USD/CHF is trading at 0.8795, up 0.50%.

Sunset Market Commentary

Fitch’s US rating downgrade from the top AAA to AA+ (stable outlook) didn’t go uncommented. Fitch cited a worsening budget situation, a high and growing debt burden and an erosion of governance (ie. narrowly avoiding a default as debt ceiling discussions get resolved at the eleventh hour) as reasons for the move.

The Next Key Data Releases that Could Allow ECB to Hike in September

ECB's President Lagarde, representing the entire governing council, announced a strategy change, following nine consecutive rate hikes over the past 12 months, by moving to a data dependency stance. Using Lagarde’s own words, “data and our assessment of data will actually tell us whether and how much ground we have to cover”. The market obviously interpreted her message as dovish with the euro underperforming the dollar.

Bank of Japan Intervened With Unscheduled Bond Buying Program

The Bank of Japan for a second time this week intervened with an unscheduled bond buying programme. That happened as the 10-y moved beyond 0.65%. It is still trading around that level currently. The yen loses marginally even as sentiment is mixed, at best. Japan underperforms (-1.3%).

British Pound Under Pressure Ahead of Bank of England Decision

The Bank of England meets later today and policy makers have a tough decision on their hands. Will they raise rates by 25 basis points or be more aggressive and deliver a 50-bp hike? The BoE has raised rates 13 consecutive times since December 2021 and is widely expected to continue hiking at today’s meeting.

Bitcoin's Continued Slide Down

The initial flight of speculators into Bitcoin proved to be short-lived. Bitcoin closed Wednesday down 0.5%, losing over 3.1% from its peak at the start of the day, and failed to get back above the 50-day average. This is another bearish signal in addition to the sequence of downward daily candles. So far, Bitcoin has managed to avoid accelerating the sell-off, but it looks like it’s only a matter of time before it does.

Sunset Market Commentary

The Bank of England board raised interest rates by 25 bps to 5.25% in a 6-3 split decision. Two members favoured a continuation at the 50 bps clip while one wanted to keep the policy rate unchanged.

Dollar's Ascent Could be the Start of a Long-Term Trend

The US dollar is continuing the rally that began in the middle of last month, benefiting from the caution in financial markets in recent days. Although the current rally has not yet brought the Dollar Index back to the levels seen before the massive sell-off in early July, the recent Dollar rally could become a long-term trend.