Market correlations appeared out of sync, as traders braced for the US CPI report and a series of FOMC member speeches weighing on Fed policy expectations and overall sentiment.
Bitcoin rose again to all-time highs, while crude oil flipped and turned in response to production concerns.
Titles:
- Australia – Quarterly Wage Price Index It came in at 0.8% QoQ in Q3 (0.9% expected, 0.8% previously)
- Catherine Mann, Member of the Monetary Policy Committee at the Bank of England He noted that inflation has not been “beaten down,” suggesting that policymakers may wait to cut interest rates
- US headline CPI in October: 0.2% m/m as expected; Annual headline CPI rose from 2.4% to 2.6% as expected; Core CPI matched expectations at 0.3% m/m
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FOMC members called for caution about future interest rate cuts:
- Federal Open Market Committee official Kashkari He noted that monetary policy is likely to keep inflation expectations steady
- Official Logan Federal Open Market Committee He stressed the need to be careful in determining the extent of reducing interest rates
- Muslim Federal Open Market Committee official He called for moderately restrictive policy while inflation remains above the 2% target.
- Federal Open Market Committee Member Schmid He stated that it “remains to be seen” to what extent the Fed might cut interest rates
- The US federal budget balance swung from a surplus of $64.3 billion to a deficit of $257.5 billion (expected deficit of $226.4 billion)
- New Zealand’s food price index fell 0.9% month-on-month in October after an earlier gain of 0.5%.
Broad market price movement:
Overlay of the US dollar against major currencies Chart by TradingView
Wednesday’s Asian session trading was a mess when it came to risk correlations, as high-yielding assets such as commodities, US stocks and cryptocurrencies moved in different directions. In particular, gold and WTI oil started higher while Bitcoin and stocks declined.
Treasury yields and the dollar began to decline ahead of the release of the US CPI, which came in line with expectations and led to initial declines due to profit taking. Less pessimistic FOMC comments allowed BTC/USD to gain traction as it climbed to all-time highs near $94K, while the S&P 500 also appeared to benefit from the CPI release but ultimately closed flat.
Meanwhile, WTI crude oil was able to emerge from a sharp decline, perhaps boosted by production outages due to Hurricane Rafael along the Gulf Coast. However, gold prices closed in the red by 0.64%, likely influenced by higher yields and a stronger dollar.
Forex market behavior: US dollar against major currencies:
Overlay of the US dollar against major currencies Chart by TradingView
The dollar appears to be trading cautiously ahead of the CPI release, with major pairs heading for modest gains during the Asian and London market hours.
Actual results showed that headline and core inflation were in line with market expectations, sparking some profit-taking, before the dollar rose across the board. Less pessimistic comments from Minneapolis Fed President Kashkari may also have contributed to the dollar’s strength, as he acknowledged that monetary policy expectations have kept price pressures steady.
The US dollar was able to achieve further gains as a member of the Federal Open Market Committee strengthened its cautious stance on future interest rate cuts. Although the rally appeared to be losing steam around FOMC member Schmid’s testimony discussing some uncertainty about the path of future interest rate cuts, it remains locked in the green versus the rest of its FX peers.
Potential catalysts coming on the economic calendar:
- FOMC Member Kugler’s speech at 12:00 PM GMT
- Accounts of the European Central Bank’s monetary policy meeting 12:30 pm GMT
- Monetary Policy Committee Member Mann’s speech at 1:00 PM GMT
- US address and core PPI 1:30 pm GMT
- Initial unemployment claims in the United States 1:30 pm GMT
- FOMC Member Barkin’s speech at 2:00 PM GMT
- US crude oil inventories from the EIA at 4:00 PM GMT
- Speech by European Central Bank President Lagarde 7:00 PM GMT
- Testimony of Federal Reserve Chairman Powell 8:00 PM GMT
- Speech by Bank of England Governor Bailey 9:00 PM GMT
- FOMC Member Williams’ speech at 9:15 PM GMT
- BusinessNZ Manufacturing Index at 9:30pm GMT
- Preliminary Japanese GDP and price index at 11:50 PM GMT
Dollar volatility could continue in the coming trading sessions, as another group of FOMC officials, including key man Jerome Powell himself, will make speeches and perhaps discuss the timing of future easing. Data on US producer prices could also influence inflation expectations.
Keep an eye on the ECB meeting minutes, as well as ECB President Lagarde’s testimony, as this may also influence the direction of the Euro throughout the day.
Don’t forget to check our currency correlation tool when making any trades!