UK CPI Lends Very Modest Support, Fed In Focus

Tsys aren’t immune from the UK CPI-impulse, although the move there is more modest as participants look ahead to the impending FOMC decision.

• TYZ3 looked through Asia-Pac highs before backing off from best levels to sit in the middle of it’s narrow 0-05 range, last +0-02+.
• This comes after initial technical support in the contract (109-03) held in late NY dealing.
• Cash Tsys are flat to 1bp richer.
• Our full preview of the impending FOMC decision can be found here.
• A quick summary of our pre-event views can be seen below:
• The FOMC will hold rates at its September meeting, while maintaining its tightening bias.
• Despite recent progress on inflation, which will see core PCE forecasts revised down for the first time since 2020, we expect most of the FOMC’s median expectations to be largely unchanged in the latest set of quarterly projections.
• That includes the median rate “dots” indicating one further hike by end-2023, as most participants will remain cautious of signalling that the hiking cycle is over, and 100bp of cuts in 2024.
• Both of these are a very close call though, with risks that the 2023-24 dots shift a notch lower.
• The interplay between the inflation forecasts and implied 2024 cuts in the Fed funds rate projections will be a key market focus of the new projections and of the press conference.