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Due to increased Treasury yields, gold abruptly pulled back from over $1,880 and dropped below $1,870. Similar to Gold, Silver too experienced a fall and fell under $22.00. The 10-year yield jumped from 4.57% to 4.73%, while the 2-year yield increased from 4.98% to 5.07%.
The US dollar continues to trade below recent cycle highs despite reversing days of losses. The US Dollar index rose 0.80% to 106.55 thanks to strong US economic statistics and rising Treasury yields.
Significance of CPI, other data
The CPI report should not make a meaningful difference for the Fed ahead of the November FOMC meeting. Fed officials are viewing the recent run up in yields as doing part of the tightening job that a majority of the Committee intended with an additional rate increase, at least in the near term. Economists expect the Fed to remain patient as they continue to evaluate the totality of the data.
In September, the US annual Consumer Price Index (CPI) rate was 3.7%, which was higher than the 3.6% market expectation. The Producer Price Index (PPI) also exceeded projections. Initial Jobless Claims increased to 209,000, little less than the 210,000 market expectation.
Strong US data along with ongoing inflation that is above target increased expectations of high interest rates for a protracted term.
The University of Michigan Consumer Sentiment survey is due on Friday, providing a preliminary reading for October, which will be closely watched. On Friday, China will release Consumer Price Index (CPI) and Producer Price Index (PPI) data for September, as well as trade figures. These numbers have the potential to impact markets, especially antipodean currencies.
Key Developments
EUR/USD lost around a hundred pips, falling to 1.0525. The Euro experienced a sharp reversal from around 1.0630 due to a stronger US Dollar. Eurostat will release Industrial Production data for August. European Central Bank (ECB) President Lagarde will participate in a panel at the annual International Monetary Fund and World Bank meeting. Spain and France will publish the final readings of their respective Consumer Price Index (CPI).
USD/CHF rebounded from weekly lows at 0.8987 to the 200-day Simple Moving Average (SMA) at 0.9090. Switzerland will release Producer and Import Price Index data for September.
GBP/USD ended a positive six-day streak with a 140-pip decline, dropping below 1.2200 and reinforcing the bearish trend. The negative risk sentiment also weighed on the Pound.
NZD/USD fell for the second consecutive day, not only breaking below 0.6000 but also dipping below the 20-day SMA to 0.5925. Early on Friday, New Zealand will release Electronic Card Retail Sales data, along with the Business NZ PMI for September.
AUD/USD posted its second-lowest daily close for the current year, slightly above 0.6300. The bias remains downward, with focus on the October lows at 0.6285.
USD/CAD jumped towards 1.3700 on Dollar strength. A daily close above 1.3750 would point to a test of 1.3800.
What to watch next
China will present crucial data, such as September’s inflation and trade figures, during the Asian session. Switzerland will release wholesale inflation data later today along with Industrial Producer data from Eurostat. The University of Michigan Consumer Sentiment survey is forthcoming in the US.
Also Read:
WTI attempts rebounding after being knocked lower by CPI data
US dollar extends gains on surging yields, hawkish bets
Gold drops to $1,870 on rekindled Fed rate concerns
EUR/USD dives post CPI data, stirs for potential Fed action
Fed’s Collins: Current monetary policy phase calls for patience
