Yesterday was another quiet day for markets as investors await the release of the US July inflation report due this afternoon. The dollar index is broadly unchanged with both EURUSD and GBPUSD trading at similar levels to yesterday, hovering just below 1.10 and in the low 1.27’s respectively. The Japanese yen lost ground against the greenback and the single currency following the recent policy tweak from the BoJ. USDJPY traded through 144 for the first time since early July and EURJPY traded at a 15 year high with some blaming yen weakness on rising energy prices that may impact Japan’s deteriorating trade balance.
Traders and investors will be glued to their screens this afternoon for the US inflation report as we look for further clues on just when the Federal Reserve will reach the peak interest rate. Rising oil prices suggest that headline CPI is likely to increase in both July and August, however policymakers will likely focus on the core, which should keep moderating as growth slows. Analysts expect headline CPI to come in unchanged at 0.2%, with the year-on-year print nudging up slightly to 3.3%. Going forward, markets believe that headline inflation will remain in a tight range with the core rate falling in the coming months. The question remains – will today’s report be enough for the Fed to signal a pause at the September policy meeting?