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US CPI to form a dollar selling trend, or US retail sales and producer prices today

The high-profile US Consumer Price Index for October was released yesterday. Year-on-year growth was +3.2%, only 0.1 percentage point below expectations, but the market sold off more dollars as US Treasury yields fell sharply. The stock market was significantly higher.

A slowdown in growth had been expected from the forecast stage, but the market was still cautious until it saw the actual figures. This has considerably strengthened the feeling that the US interest rate hike will be halted before the end of the year.

A series of US economic indicators are scheduled to be released today, although they are not as high profile as yesterday’s consumer price index. Retail sales are expected to be -0.3% MoM, down from +0.7% last time. The producer price index is expected to grow by +1.9% y/y, a slowdown from the previous +2.2%. However, core year-on-year growth is expected to be +2.8%, a slight increase from the previous +2.7%. If these key indicators generally follow yesterday’s trend, it will further reinforce the sense that interest rate hikes will be halted before the end of the year. Stock markets are also likely to take some comfort from a further reduction in uncertainty. In the foreign exchange market, the likelihood of a dollar selling trend will increase.

However, attention should be paid to the presence of the dollar/yen exchange rate for the dollar selling trend. If the market strongly anticipates an early US interest rate cut, the dollar/yen is likely to turn to the downside, but US monetary officials may nail the market’s excessive incorporation of the rate cut argument. This is because, in reality, the inflation target has not been met. Opportunities are scheduled today for Fed Vice-Chair Barr and Richmond Fed Governor Barkin, among others, to speak. There is persistent pressure on investors to sell the yen based on interest rate differentials between the US and Japan and Europe. In addition, the rising stock market may provide a tailwind for the dollar’s weakness in European and Oceania currencies, which could lead to a rise in cross-yen. Whether the dollar will shake off these pressures and form a downtrend is likely to be the key to an all-round weaker dollar market.

There are many events in the London market later in the day. Among economic indicators, the UK inflation figures will be in focus. The UK Consumer Price Index, Retail Price Index and Producer Price Index for October will be released at 4pm GMT. Of particular interest is the Consumer Price Index – Year-on-Year. The market forecast is +4.7%, a sharp slowdown from +6.7% in the previous release. Although it has already been factored in that the figure will be below 5%, as stated by Pill, the Bank of England’s chief economist, and others, it should be noted that, as with yesterday’s US consumer price index, the reaction after the results are released could be significant.