Dollar firm ahead of US inflation data

The market continues to pare back expectations for near-term Fed rate cuts – just around 40bps in total is now priced in for the final two meetings of this year, down from circa 75bps a short while ago – which is pushing up US bond yields and underpinning the dollar. The euro and sterling are trading at around $1.0940 and $1.3075 respectively this morning, ahead of US CPI inflation data later today, leaving EURGBP a touch lower at around £0.8365.

US bond yields moved up yesterday with 2- and 10-yieds both rising by around 6bps, while equivalent UK and German yields were flat to marginally higher on the day. Equity markets had a positive session with European stocks adding around 0.7% and the S&P 500 in the US closing at a new all-time high.

The minutes of the Fed’s September monetary policy meeting show a “substantial majority” of members supported cutting interest rates by 50 basis points (to a range of 4.75% -5%) though “some would have preferred” a 25bps move. Looking forward, members believed it would “likely be appropriate” to lower rates further and to gradually “move toward a more neutral stance of policy over time”.

Today’s CPI inflation report in the US is expected to show headline and core consumer prices rose by 0.1% and 0.2% month-on-month respectively in September, which would push the annual rate of headline inflation down to 2.3% from 2.5% in August but leave the core rate unchanged at 3.2%.

Other economic data due today include weekly jobless claims and real hourly/weekly earnings in the US, while the ECB publishes the minutes of last month’s monetary policy meeting at which it lowered the deposit rate by a further 25bps.