Markets advance as focus on US CPI

By Lukman Otunuga, Senior Market Analyst at FXTM  

Asian shares advanced on Thursday following the moderately positive performance from Wall Street overnight, as dovish Fed minutes and easing oil prices supported risk sentiment.

However, markets remain cautious amid mounting geopolitical tensions in the Middle East and incoming US data.

European markets traded higher ahead of the ECB meeting minutes, while US futures are flashing green as the focus falls on the U.S. consumer inflation report later Thursday.

In the currency space, dollar weakness has been a theme this week amid growing expectations around US rates peaking.

Looking at commodities, oil prices fell for a third day after industry data revealed a larger-than-expected rise in crude inventories, while gold continued its rebound as the USD and Treasury yields retreated.

Dollar steady ahead of US inflation data

The September US Consumer Price Index (CPI) report is likely to influence expectations around whether the Fed will keep rates higher for longer.

Headline inflation is expected to cool to 0.3% month-on-month from 0.6% seen in the prior month, while the core is projected to remain unchanged at 0.3%.

Should September’s CPI show evidence of cooling prices, this is likely to boost bets around the Fed pausing hikes for the rest of 2023 and weaken the dollar further.

Traders are currently pricing in a 10% probability of a 25-basis point hike in November, with this rising to 30% by December, according to Fed Funds futures.

A sticky inflation print may halt the decline in the dollar and see it resume its uptrend.

 

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