US dollar bulls back in the game into all or nothing US CPI key event – by fx_ross DollarIndex YieldCurve Oil Fed CPI
Markets are currently pricing in a 92% chance of a 75-basis-point increase for next month's Federal Open Market Committee meeting. The remaining 8% probability is for an increase of 50 basis points. US inflation data will be watched closely as well and could prove influential in setting investors' expectations for the Fed. In an effort to tame sky-high inflation, the central bank has hiked its policy rate from near-zero at the beginning of this year to the current range of 3.00% to 3.
In other events, the FOMC minutes will be released. The September dot plot revealed a higher-than-expected Fed Funds terminal rate of 4.625%, with a fairly even dot distribution around this level. Analysts at TDS said that the ''question is how much of this was reflected in the deliberations at the Sep meeting. The tone of these deliberations likely was more hawkish given core CPI inflation trends, upsetting the current dovish pivot markets narrative.
Also to keep in mind, the US dollar has been gaining against China's offshore yuan USDCNH and it is set to continue doing so as China's economy struggles under the weight of ongoing COVID outbreaks and lockdowns. We saw more evidence of that in the weekend's Caixin Services Purchasing Managers' Index for September 2022 which came in lower at 49.3 from 55.0 in August, taking it back into contraction. We have also seen China official services PMI miss the mark at 50.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
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