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Early USD Weakness Consolidates Ahead of Inflation Data

FOREX
  • The USD index is registering 0.6% losses on Monday, extending the most recent pullback from last week’s cycle highs to 2.3%.
  • Greenback weakness has largely been driven by a firmer Euro, rallying alongside broadly hawkish tones from a number of ECB members both over the weekend as well as early Monday. Bundesbank chief Nagel flagged a persistent tightening bias at the ECB, stating that more clear ECB steps are needed if inflation lingers. Other speakers including de Guindos have suggested that another 75bps move is possible depending on data outcomes between now and the October meeting.
  • EURUSD did breach the channel top, drawn from the Feb 10 high, which intersected at 1.0149 and represents a key resistance. Despite some early momentum, the Aug 17 high at 1.0203 has capped the topside and the pair has reversed back to 1.0110 ahead of the APAC crossover.
  • Jumping on the coat tails of the single currency, GBP and CHF are the best performers, both rising over 0.7% against the greenback, with a notable 0.7% reversal lower in EURGBP after making a new marginal high for the year at 0.8722.
  • A degree of optimism continues to filter through to risk sentiment, bolstering recent gains for major equity benchmarks. This has provided more moderate gains for the likes of AUD, NZD and CAD. The Japanese Yen is also underperforming alongside the greenback following another volatile session. USDJPY sits in the middle of today’s 142-143.50 range and will likely be the focus for investors approaching tomorrow’s significant US inflation readings given the pair's recent volatility over data releases.
  • August CPI print is expected to see similar sequential figures as those in July, with a second month of core at a ‘lower’ 0.3% M/M (0.31% in July) and headline at -0.1% M/M (-0.02%) after another drag from energy.
  • Before US CPI, we have the release of UK employment data and German/Eurozone ZEW sentiment readings.
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