[MARKET ANALYSIS] DXY takes a breather after recent advances, while the attention turns to US CPI
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[MARKET ANALYSIS] DXY takes a breather after recent advances, while the attention turns to US CPI
[MARKET ANALYSIS] Treasuries remained subdued after sliding yesterday and with the 10yr yield nearing 5% after oil surged
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On the Newsquawk feed at , 20 minutes before this page.
DXY: Flat
- Takes a breather after strengthening yesterday as yields climbed to multi-year highs alongside a surge in oil prices owing to the geopolitical escalation in the Middle East between Saudi Arabia and Iran-backed Houthis, which increases the threat to shipping in the Bab al-Mandab Strait. In terms of recent data, PPI was mixed and therefore puts the onus on today's CPI report to influence the Fed decision next week, while Initial and Continuing Claims were little changed W/W.
EUR/USD: Flat
- Trades little changed overnight after having recently weakened against the buck despite the ECB's decision to hike rates by 25bps, which was widely expected and the statement refrained from any clear forward guidance, but noted inflation will remain well above target for an extended period. Furthermore, there was a later source report that ECB governors think further policy tightening is likely and may debate another hike as soon as October, although it was stated that market expectations for three more hikes may be overly optimistic and December may be a more opportune time to raise borrowing costs.
GBP/USD: Flat
- Lacks demand and retests the 1.3500 handle, while participants look ahead to incoming data including monthly GDP.
USD/JPY: +0.1%
- Remains afloat after climbing above 154.00 alongside the rise in US yields and surge in oil prices.
Antipodeans: AUD/USD +0.1% / NZD/USD +0.4%
- Nursed some losses with little fresh overnight catalysts, while there was a hawkish call from Citi, which now sees two more RBA rate hikes this year to lift the Cash Rate to 4.85%.
Context
Pre-CPI consolidations of this kind are a recurring pattern: after a yield-driven dollar advance, the G10 complex tends to go quiet into the release, with positioning squared and the repricing deferred to the print. The channel here is the front end, since the note frames CPI as the input for the Fed decision due the following week, and episodes where oil-driven geopolitical risk has lifted yields alongside inflation expectations have historically made the headline rate more sensitive to upside surprises than downside ones. The EUR leg illustrates the usual pattern of a fully priced hike failing to support the currency: it is the guidance and the internal source reports on the timing of the next move, not the decision itself, that sets the follow-through. USD/JPY at these levels is the pair most exposed to the yield leg, and historically the one where verbal and then actual intervention risk has risen as it pushes through round numbers. The follow-ons are the CPI print itself, any shift in Fed speakers' tone once it is absorbed, and UK monthly GDP for the sterling leg, with the hawkish RBA repricing from the sell side the only idiosyncratic antipodean thread.
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