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US CPI Sparks Substantial Intra-Day Volatility

FOREX
  • The greenback was pulled in both direction on Wednesday, as opposing forces of higher-than-expected inflation readings and the potential knock-on effects to growth collided.
  • Initial USD strength saw EURUSD come within close proximity of parity once more before the significant US data, however, strong demand saw the pair rise sharply back towards 1.01 approaching the CPI deadline.
  • The upside surprises for June CPI, both headline and core, sparked a short-term wave of dollar buying and the USD index rallied just shy of 1% from pre-data levels as markets began to price in even bolder action from the Fed in July. Notably, this prompted EURUSD to briefly print fresh cycle lows below parity at 0.9998.
  • However, the renewed optimism from USD bulls was extremely short-lived as the market immediately shifted their concerns to the US growth outlook. The US yield curve further inverted with 2s10s hitting the most inverted levels since 2000, substantially weighing on the USD and prompting a 1.02% reversal in the USD index and EURUSD to take out the pre-CPI highs above 1.01 to print 1.0122.
  • Short-term price action dynamics were in full flow as the dollar regained its poise approaching the APAC crossover, bolstered by Bostic’s comments suggesting ‘everything is in play’ regarding future monpol decisions.
  • Slightly outperforming on the day was CAD (+0.45%) following the BoC’s surprise 100 point rate hike. The clear underperformer in G10 was the Japanese Yen, falling 0.21% despite the weaker greenback.
  • Aussie employment kicks off the Thursday data calendar, before the European Commission publish their EU Economic Forecasts. US PPI data will precede the Fed’s Waller, due to speak about the economic outlook at the Annual Rocky Mountain Economic Summit.
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