Inflation data in the US today
The main currency pairs remain confined to very tight ranges, ahead of important CPI inflation data (July) in the US later today. The euro and sterling are trading at around $1.1540 and $1.35 against the dollar respectively this morning, while EURGBP is hovering just below £0.8550. With the chances of a 25bps interest rate increase from the Fed at its next meeting in September currently seen at around 50/50, an in line/softer the expected inflation report today – the consensus expects headline and core consumer prices to have increased by 0.1% and 0.2% respectively last month (3.4% and 2.5% y-o-y respectively) – would see the market pare back expectations for a rate hike next month and the dollar lose ground; stronger than forecast data, on the other hand, would raise the chances of a rate increase in September and see the US currency strengthen accordingly.
Some talk from Pakistan’s defense minister about the chances of a US-Iran deal on reopening the Strait of Hormuz saw oil prices dip yesterday – with Brent crude getting down to a low for the day of under $87 p/b – which in turn contributed to a modest decline in government bond yields in the main markets. The fall in oil prices has proved short-lived however with Brent crude back up close to $90 p/b this morning. In equity markets, similar to Monday, European stocks chalked up modest gains but US and UK stocks both ended marginally lower on the day. Some positive (technology-related) corporate earnings reports overnight sees European indices open in positive territory this morning.
Optimism among small businesses in the US rose for a second month running in July according to the latest survey from the National Federation of Independent Business (NFIB). The assessment of the economic outlook improved again last month, while there was a notable jump in hiring and investment plans for the coming months.
As mentioned, the US inflation report will be the main focus for markets today. There is little else of note due in terms of economic data releases.