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Markets rise as spotlight shines on US CPI

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By Lukman Otunuga, Senior Market Analyst at FXTM  

Asian markets were a mixed bag on Tuesday despite the broadly positive cues from Wall Street overnight, as a surge in Tesla powered a rally in tech stocks.

Despite the shaky sentiment across Asia amid lingering concerns about China’s economy, European futures pointed to a positive open as focus fell on the pending Germany ZEW survey expectations.

Shares across the region could see heightened volatility this week due to the ECB meeting on Thursday.

Looking at currencies, the British Pound briefly jumped after UK wage data beat market expectations.

In the commodity space, oil is hovering near its highest level this year ahead of key monthly reports from the IEA and OPEC.

Dollar steady ahead of US inflation data

The August US Consumer Price Index (CPI) report will act as a critical piece of information that determines whether the Fed will keep rates higher for longer.

Headline inflation is expected to jump thanks to energy costs, with markets projecting monthly prices to accelerate 0.6% in August, but the core is seen stable at 0.2%.

Ultimately, further signs of cooling inflationary pressures may feed the argument around the Fed already concluding its hiking cycle.

Traders are currently pricing in a 7% probability of a 25-basis point hike next week, with this jumping to 46% by November, according to Fed funds futures.

Should the inflation numbers print below market forecasts, this could reinforce the argument around the Fed being done with its hiking cycle in 2023, weakening the US Dollar.

However, a sticky inflation print could inject dollar bulls with more strength as expectations rise around the Fed having headroom to hike one more time this year.

 

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