Market correlations seemed out of sync, as traders braced for the the U.S. CPI report and a series of FOMC member speeches that influenced Fed policy expectations and overall sentiment.
Bitcoin once again surged to new all-time highs while crude oil tossed and turned in reaction to production-related concerns.
Headlines:
- Australia quarterly wage price index came in at 0.8% q/q in Q3 (0.9% expected, 0.8% previous)
- BOE MPC member Catherine Mann suggested inflation hasn’t been “vanquished,” indicating policymakers may wait on rate cuts
- U.S. headline CPI in Oct: 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 on future rate cuts:
- FOMC official Kashkari noted that monetary policy has likely kept inflation expectations anchored
- FOMC official Logan emphasized need for caution in deciding extent of rate cuts
- FOMC official Musalem advocated for moderately restrictive policy while inflation remains above 2% target
- FOMC member Schmid stated it “remains to be seen” how much more the Fed might cut rates
- U.S. federal budget balance swung from $64.3B surplus to $257.5B deficit (expected $226.4B deficit)
- New Zealand food price index declined 0.9% m/m in Oct after previous 0.5% gain
Broad Market Price Action:
Overlay of USD vs. Major Currencies Chart by TradingView
Wednesday’s Asian session trading was a mess when it came to risk correlations, as higher-yielding assets like commodities, U.S. equities, and crypto moved in different directions. In particular, gold and WTI crude oil kicked off on a bullish note while bitcoin and stocks edged lower.
Treasury yields and the dollar started edging lower leading up to the U.S. CPI release, which came in line with expectations and triggered initial dips on profit-taking. Less dovish FOMC commentary allowed BTC/USD to gain traction on its climb to fresh all-time highs close to $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 pull up from its sharp tumble, possibly boosted by production disruptions by Hurricane Rafael along the Gulf Coast. However, gold prices closed 0.64% in the red, likely dragged by rising yields and a stronger dollar.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The dollar appeared to trade cautiously ahead of the CPI release, with major pairs going for modest gains during Asian and London market hours.
The actual results showed that headline and core inflation came in line with market expectations, sparking some profit-taking, before the dollar turned higher across the board. Less dovish commentary from Minneapolis Fed President Kashkari may have also contributed to dollar strength, as he acknowledged that monetary policy expectations kept price pressures anchored.
The Greenback was able to eke out more gains as FOMC member Musalem reinforced a cautious stance on future rate cuts. Although the rally appeared to lose steam around FOMC member Schmid’s testimony which discussed some uncertainty about the path of future rate cuts, it still closed in the green against the rest of its forex peers.
Upcoming Potential Catalysts on the Economic Calendar:
- FOMC member Kugler’s speech at 12:00 pm GMT
- ECB Monetary Policy Meeting Accounts at 12:30 pm GMT
- MPC member Mann’s speech at 1:00 pm GMT
- U.S. headline and core PPI at 1:30 pm GMT
- U.S. initial jobless claims at 1:30 pm GMT
- FOMC member Barkin’s speech at 2:00 pm GMT
- U.S. EIA crude oil inventories at 4:00 pm GMT
- ECB President Lagarde’s speech at 7:00 pm GMT
- Fed Chairperson Powell’s testimony at 8:00 pm GMT
- BOE Governor Bailey’s speech at 9:00 pm GMT
- FOMC member Williams’ speech at 9:15 pm GMT
- New Zealand BusinessNZ manufacturing index at 9:30 pm GMT
- Japanese preliminary GDP and price index at 11:50 pm GMT
Dollar volatility could still be in play in the next trading sessions as another set of FOMC officials, including main man Jerome Powell himself, will be making speeches and possibly discussing the timing of future easing. Data on U.S. producer prices could also influence the inflation outlook, too.
Do keep an eye out for the ECB meeting minutes, as well as ECB head Lagarde’s testimony, as these could also influence EUR direction throughout the day.
Don’t forget to check out our Currency Correlation tool when taking any trades!
