The week so far has the USD being favoured by market participants as we see the USD maintain its edge against its counterparts despite a mixed bag of data which has left little in the form of certainty regarding the upcoming FOMC decision. Markets will look to today key data along with all data up to the announcement to further price in their expectations for the touted Fed rate hike where we expect better than expected data to lift the dollar further while seeing gold and equities come off.
Today’s CPI data is of extreme impotence given the FED`s mandate to maintain inflation at or close to 2% through the use of various monetary policy tools, the most important being the use of interest rates. Better than expected CPI data will imply that the US economy is indeed heating up and that it may warrant a rate hike by the FED, thus bolstering the support for USD while causing a selloff in gold and equities as the expectation of a tighter monetary policy is priced in by investors. Conversely, should the data be worse than expected, showing that the US economy has cooled down, we would see the probabilities of a rate hike diminished with USD being sold off aggressively as gold and equities bounce back in anticipation of cheap money and its inflationary results.
With the Key economic data for today is as follows:
- EU Economic Summit
- Manufacturing Sales m/m expected at 0.6%
- Foreign Security Purchases expected at 10.12B
- CPI m/m expected at 0.1%
- Core CPI m/m expected at 0.2%
- Prelim UoM Consumer Sentiment expected at 91.0