US Dollar: Inflation data keeps Fed risks alive – Rabobank

RaboResearch Global Economics & Markets notes that US CPI and PPI data, alongside shifting Fed expectations, are driving US Dollar and US Treasury market dynamics. The report highlights hotter-than-expected core CPI, a temporary spike and retracement in US Treasury yields, and the potential for PPI to confirm CPI trends. Fed speakers, including Goolsbee, Barkin and Bowman, underscore ongoing concern over US inflation.

CPI, PPI and Fed repricing

"US Treasury yields spiked in response to the data and led to a repricing in the OIS curve, which was implying close to a 50% chance of a hike at the October meeting, up from just 23% the day prior."

"However, yields retraced throughout the day, and market-implied Fed expectations are back to around a 37% chance of a hike on October 28."

"Retail sales are unlikely to drive much market movement, especially in an inflationary environment, but many will be looking towards PPI as a leading indicator of other consumer inflation metrics."

"Headline PPI is expected to pick up from 0.4% m/m to 0.6% m/m, likely driven by higher energy prices, while core PPI is expected to pick up marginally from 0.2% to 0.3% m/m."

"An in-line print would likely confirm yesterday’s CPI inflation print, and any knee-jerk market moves are unlikely to have lasting market strength—especially given the speed and conviction behind yesterday’s rates retracement after CPI—unless there is a significant upside surprise, as occurred in April of this year, when PPI came in at 1.1% m/m for the hottest print since March 2022."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)