Global Market Insights - Forex, Futures, Stocks

Week Ahead: As dollar recovers, spotlight falls on US CPI inflation

Broadcast on:: 04 Oct 2024
Audio Format:: other

US CPI data to guide Fed rate cut bets and the dollar. RBNZ expected to cut interest rates by 50bps. Wounded pound awaits monthly GDP numbers.

Risk Warning: Our services involve a significant risk and can result in the loss of your invested capital. *T&Cs apply.

Please consider our Risk Disclosure: https://www.xm.com/goto/risk/en

Risk warning is correct at the time of publication and may change. Please check our Risk Disclosure for an up to date risk warning

Receive your daily market and forex news analysis directly from experienced forex and market news analysts! Tune in here to stay updated on a daily basis: https://www.xm.com/weekly-forex-review-and-outlook

In-depth forex news analysis on all major currencies, such as EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD.

Welcome to another episode of Global Market Insights, brought to you by XM.com, where we provide meaningful and informative content about the events that affect market trends and shape global markets. Will the Fed deliver another 50 basis points rate cut at its November meeting? That seems to be the question investors are seeking an answer to, and the upcoming week's data might provide some clarity on that. This is the week ahead here at XM.com. Thanks for joining us. I'm Christina Maruchos. With me today to unpack this upcoming week, is our senior investment analyst, Karalen Baspi Suros. So, Karalen Bose, the U.S. inflation report on Thursday, in addition to the Fed minutes, this upcoming week, might offer some clues to how big a rate cut the Fed will deliver at its November gathering. But how might the dollar perform? Hello Christina, yes, buying any further escalation in the Middle East, I'm highlighting that, dollar traders are likely to keep their gaze locked on the economic calendar, especially after these weeks' data convinced some market participants that in back-to-back 50 basis points cut in November may not be necessary. Specifically, the probability for such a move now is resting at around 35%. So, on Wednesday, we do get the minutes from the latest FOMC decision. But given that the dot plot from that decision already revealed how policymakers think and what are their plans, and also considering that several of them already clearly expressed their preference for quarter-point reductions from their own words, I don't believe that we will learn something new from the minutes. So the spotlight is likely to fall on the CPI of Thursday. The S&P Global PMIs and the ASM Non-Manifracturing Survey revealed that prices charged by businesses accelerated during the month, during the month of September, which implies some upside risks to Thursday's data. So, should the numbers point to some stickiness in inflation, I believe that more investors may get convinced that the Fed will proceed as initially planned, I mean by cutting interest rates by 25 basis points at each of the November and December decisions, and this could add more fuel to the dollar's edges. Well, staying on the topic of interest rates, the Reserve Bank of New Zealand meets this week and is set to deliver another rate cut. How might we see the New Zealand Dollar perform though? Yes, the RBNZ is expected to cut interest rates again, but the question is by how much? At their August decision, they cut interest rates by 25 basis points at the decision that came one year ahead of the bank's previous forecasts. This prompted investors to take a more aggressive stance, which was corroborated by incoming data. The data revealed that retail sales tumbled in the second quarter, and that the overall GDP rate for the quarter slipped into negative territory again. The rate for the first quarter was also revised down to indicate a modest 0.1% expansion, and this was after the economy suffered a recession in the second half of 2023. Now, investors are convinced that the bank will cut interest rates by 50 basis points next week, and by another 50 in November. This means that the risks for the QIM may be tilted to the upside, because if officials do deliver a double cutting signal more aggressive, more aggressive, is ahead, this will just confirm market expectations, and the QIM is unlikely to depreciate much. On the other hand, if they cut by only 25 basis points, then the QIM is likely to recharge and resume its prevailing out. I see. And finally, let's cross into the United Kingdom. The pound has shown incredible resilience this year so far, but it did take a hit from Dovish remarks by Bank of England Governor Bailey that they could become more activist on interest rates. So how could Sterling perform this week, especially on the GDP data? Indeed, the pound suffered this week, and it was due to Bailey's remarks. And after those remarks, the market is now nearly fully convinced that a 25 basis points cut will be delivered in November by the Bank of England. And investors are also assigning a 65% probability for another cut in December. The GDP, the monthly GDP data comes on Friday and will be accompanied by the industrial and manufacturing production rates, as well as the trade numbers, all for the month of August. So it is a pointing set of data that could add more credence to Bailey's remarks that they could proceed with more aggressive easing, and thereby prompt traders to push Sterling even lower. [BLANK_AUDIO]