Forex Today: US Dollar weakens ahead of US CPI inflation data
Here is what you need to know on Wednesday, October 14:
The US Dollar Index (DXY) weakens to near 102.10 as oil prices ease and US bond yields fall. Traders await the release of the US September Consumer Price Index (CPI) inflation data on Wednesday for fresh clues on the Federal Reserve's (Fed) interest rate path. On Thursday, the US Producer Price Index (PPI) and Retail Sales will be in the spotlight.
Markets see about a 79% probability that the Fed will leave rates unchanged at its October 27-28 meeting, up from 51% a month ago, but are pricing in an 89.4% chance of an increase at the final meeting of the year in December, according to the CME FedWatch tool.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.11% | -0.13% | 0.00% | -0.08% | -0.25% | -0.15% | -0.06% | |
| EUR | 0.11% | -0.03% | 0.11% | 0.05% | -0.17% | -0.07% | 0.04% | |
| GBP | 0.13% | 0.03% | 0.13% | 0.02% | -0.13% | -0.02% | 0.06% | |
| JPY | 0.00% | -0.11% | -0.13% | -0.05% | -0.24% | -0.13% | -0.04% | |
| CAD | 0.08% | -0.05% | -0.02% | 0.05% | -0.17% | -0.08% | 0.00% | |
| AUD | 0.25% | 0.17% | 0.13% | 0.24% | 0.17% | 0.11% | 0.18% | |
| NZD | 0.15% | 0.07% | 0.02% | 0.13% | 0.08% | -0.11% | 0.10% | |
| CHF | 0.06% | -0.04% | -0.06% | 0.04% | -0.01% | -0.18% | -0.10% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Traders weighed the prospect of additional Russian diesel supplies and the situation in the Middle East. Yemen’s Houthi rebels launched a series of missile attacks targeting cities across Saudi Arabia as the military said projectiles are being intercepted. The Saudi Ministry of Energy stated that an attack on the Saudi Aramco facility in Dhahran caused a small fire, but no casualties were reported.
Data released by the National Bureau of Statistics of China on Wednesday showed that the country’s CPI climbed 0.9% YoY in September, compared to a rise of 0.8% in August. This figure came in softer than the market expectation of 1.0%. Meanwhile, PPI jumped 5.0% YoY in September, versus a 3.8% increase prior, stronger than the forecast of 4.5%.
Elsewhere, US President Donald Trump said on Tuesday that Taiwan agreed to purchase 30% of the gas from a proposed pipeline project in Alaska, per Reuters. However, details of the agreement have not yet been disclosed.
US CPI in focus as Fed weighs AI-driven inflation risks
Analysts at Danske Bank highlight that, in the US, “the most important data release of the week will be the September CPI, released this afternoon.” They forecast “headline inflation at 0.5% m/m SA, 3.6% y/y (prior: 0.6% m/m, 3.4% y/y) and core inflation at 0.2% m/m SA, 2.5% y/y (prior: 0.3% m/m, 2.4% y/y), with energy prices being the main driver of the expected pickup in headline inflation.”
For the Fed, Danske Bank expects that “focus will be on whether underlying inflation pressures are broadening.” With this being “the final inflation print before the October FOMC meeting, and recent Fed communication signalling little urgency to hike again,” they judge that “it would take a clear upside surprise for the Fed to signal a rate hike already in October.”
On the policy narrative, Danske Bank notes that “on the wires in the US, Fed's Waller (voter) noted that AI-related demand is already spilling over into inflation, while the productivity gains that could eventually ease price pressures will take time to emerge.” Chicago Fed's Goolsbee (non-voter) “struck a similar tone, warning that AI-related investment is beginning to look like aggregate overheating and risks broadening into more persistent inflation.” Danske Bank concludes that “this supports the case for keeping policy tight in the near term and leaves the comments hawkish on the margin.”
EUR/USD gains traction above 1.1200 in the European morning. Traders await the speeches from European Central Bank (ECB) policymakers later in the day, including President Christine Lagarde, Frank Elderson and José Luis Escrivá.
GBP/USD gathers strength to near 1.3270 on Wednesday. Bank of England (BoE) Chief Economist Huw Pill said earlier in the day that he is a bit more sceptical about market pricing of four rate hikes over the next year.
USD/JPY trades with mild losses around 158.30 in the European session on Wednesday. Pricing in the overnight swaps market showed that traders are pricing in nearly a 10% odds of a Bank of Japan (BoJ) rate hike this month, with the probability rising to 88% for a move by December, according to Bloomberg.
Gold declines to near $4,150 on Wednesday. The key US inflation data later this week will be closely watched as it could offer some hints on the Fed's latest monetary policy stance.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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