Market Drivers Post-CPI Data, US Session, August 10

Mohamed Abdelhamid 11 August, 2023 2:29 am Commodities, Forex Market, Market Update

A spokesperson for Prime Minister Rishi Sunak’s government said Biden’s executive order gave important clarity on the U.S. approach: “The UK will consider these new measures closely as we continue to assess potential national security risks attached to some investments.”

The American dollar strengthened on Thursday, supported by higher US Treasury yields. The US dollar reversed course and began to trend upward after a period of decline. Although it is still below the 102.80 barrier level, the US Dollar Index increased above 102.50 to close at its highest level daily in a month.

The 10-year Treasury yield increased to 4.10%, and the 2-year yield rose to 4.84%. Wall Street stocks ended the day marginally higher thanks to speculation that the Federal Reserve won’t increase interest rates further.

The Japanese Yen was among the worst performers, as USD/JPY broke above 144.00, approaching the 2023 highs. The outlook appears bullish, supported by higher US yields and monetary policy divergence.

Economic Data

Inflation data from the US indicated an acceleration in the CPI, rising from an annual rate of 3% to 3.2%. However, this figure fell slightly below the market expectation of 3.3%. Another economic report revealed an increase in Initial Jobless Claims to 248,000, surpassing market estimates of 230,000.

The stable macroeconomic environment and easing inflation pressures in the U.S. have encouraged optimism that the inflation rate can decline to the Fed’s target of 2% without significantly worsening the economy. Given early indications that consumer spending power is already declining, we continue to believe that is improbable. The Fed is unlikely to raise interest rates in the absence of a more significant rise in inflation. As we waited for further indications of a slowing economy, we anticipated that the Fed would maintain rates unchanged through 2024.

More inflation data from the US is expected on Friday with the release of the Producer Price Index (PPI), which is anticipated to rebound from 0.1% to 0.7% (annual rate). The University of Michigan Consumer Confidence survey is also scheduled for release.

Key Developments

Gold initially jumped to $1,930 after the US data but ended up falling to $1,910, marking the fourth consecutive daily decline and the lowest close in a month. Silver finished flat around $22.70 and continues to show weakness after pulling back from $23.00.

The EUR/USD initially rose above 1.1050 but later turned downwards, falling below 1.1000. The pair continues to move sideways, trading between key SMAs and a key support level at 1.0925.

The Pound Sterling lagged on Thursday ahead of key economic data from the UK, including Q2 GDP and Industrial Production figures, scheduled for release on Friday. GBP/USD posted the lowest daily close in a month, below 1.2700, while EUR/GBP jumped to 0.8660.

The USD/CAD pair continued to edge higher, rising to the 1.3450 area, matching the 200-day SMA. The pair is consolidating above the 20-week SMA, for the first time since May.

NZD/USD is testing levels below 0.6030, reaching the lowest levels since early June, which may set the stage for a test of 0.6000. AUD/USD spiked to 0.6618 after the US CPI data but then sharply reversed, falling below 0.6520. Risks are tilted to the downside, and a test of 0.6500 seems likely.

What to watch on Friday:

During the Asian session, the Business NZ PMI and the Food Price Index for July are scheduled to be released. Later in the day, the UK will release important data, including the Q2 GDP and Manufacturing Production figures. Additionally, more inflation data from the US is expected with the release of the Producer Price Index (PPI) and the University of Michigan Consumer Confidence Index.

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