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  • Writer's pictureMike Paterson

US inflation data in focus

Wednesday 10 August 2022

After two days of waiting and relative inactivity the markets finally get their next feed at the trough with the release of US CPI data at 12.30 GMT, following on from Friday's strong jobs and wages report.

Headline forecasts are for 8.7%, vs 9.1% last time as oil prices retreat but attention will be on core inflation and Citi Economics expects another strong 0.52% MoM increase in July consistent with the 6-8% annualized pace of core inflation that has persisted since October 2021 saying "Underlying strength in shelter and other services prices over the next few CPI prints lead us to expect another 75bp hike at the Fed’s next meeting in September and no significant pivot towards a potentially more dovish policy stance...".

Afterwards, US Fed’s Evans discusses economy and monetary policy at 15:00 GMT, and Fed’s Kashkari gives a speech at 18:00 GMT. Note that both Fed officials have historically leaned dovish at the FOMC but, alongside nearly all board members, embraced a more hawkish tone recently.

Variable risk sentiment this morning understandably with equity markets first falling but now off their lows as I type, gold firm and oil off its lows but looking vulnerable still. Some JPY and CHF demand notable earlier but fading now as markets continue to second-guess.

GBPUSD: Capped around 1.2130 this time but holding 1.2060 as we continue to range tightly. Some EURGBP demand helping to cap still. EURGBP: A good hold of 0.8440 this time with EURUSD still finding some decent dip demand but failure above 0.8460. I still think we'll see two-way opportunity.GBPJPY: Flatlining as core pairs range tightly and risk remains variable.Now capped around 163.30 but underpinned at 163.00 as the risk jury remains out.

EURUSD: Support at 1.0200 still with large option contract interest today again. Good support if we see USD demand post-CPI. Now capping at 1.0220-25 again after failure around 1.0250 with rally sellers including me still poised. USDJPY: Holding 134.75 now but equally capping 135.30 as we wait on CPI. EURJPY: Forming a base around 137.75 but capping above 138.00 with sellers poised still whenever risk turns. USDCHF: Capped around another old line of 0.9540 and where I noted offers yesterday amid some softer USD and EURCHF tones but holding 0.9510-20. SNB will be keeping an eye on things as ever but CHF demand notable again helped by rate hike expectations.EURCHF: Extended retreat to 0.9710 after capping at 0.9750 with SNB watching/smoothing amid the variable risk and EUR tones but some inherent CHF demand still.

AUDUSD: Failure this time above 0.6985 but good support into 0.6940-50 as we range tightly.GBPAUD capping at 1.7375-80 again but holding 1.7325 so far as core pairs continue to range tightly.NZDUSD testing resistance around 0.6300 as I type after finding support at 0.6275 again amid generally USD softer tones. GBPNZD holding 1.9175 in the latest retreats after capping around 1.9300 as core pairs range tightly still.USDCAD: Capping at 1.2900 where we also have large option interest today to keep in mind post US CPI but support coming in at 1.2860. Expect some good two-way business still overall amid the variable risk/oil and USD tones.

Let's continue to be careful out there.

Interbank rates: 08.42 BST

GBPUSD 1.2086

EURUSD 1.0213

EURGBP 0.8450

GBPEUR 1.1850

GBPJPY 163.11

GBPCAD 1.5573

GBPCHF 1.1508

GBPZAR 19.9730

GBPHKD 9.4259

USDJPY 134.94

EURJPY 137.85

EURCHF 0.9715

EURHKD 7.9543

AUDUSD 0.6966

USDCAD 1.2874

USDCHF 0.9512

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