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- US Dollar eases ahead of CPI while pressure on Biden builds
US Dollar eases ahead of CPI while pressure on Biden builds
- The US Dollar eases ahead of a packed data release on Thursday.
- President Biden faces setbacks from famous supporters calling for him to step down.
- The US Dollar index hovers around 105.00, though tilted to the downside.
The US Dollar (USD) edges lower for a second day in a row when measured by the US Dollar Index. The Greenback does not have much reason to rally firmly, with uncertainty creeping in its valuation after big names such as Nancy Pelosi and actor George Clooney came out on social media asking for President Joe Biden to drop out of the race and pave the way for a better candidate. It is a big blow for the current ruling President as concerns keep biting away at the polling numbers.
On the economic front, only one element counts on Thursday: the US Consumer Price Index (CPI) in all its forms and colours. Traders will want to see at least the disinflationary nature of the numbers being confirmed, which should keep markets on track for an interest rate cut in September. Add in the weekly Jobless Claims data, and the US Dollar might be easing a bit further on the back of any upticks in the Jobless numbers.
Daily digest market movers: Finally, some moves to come
- At 12:30 GMT, different economic data will be released at the same moment. Let us walk you through the main numbers to focus on:
- US CPI for June:
- Monthly headline CPI is expected to tick up marginally by 0.1% from 0.0%.
- Monthly core CPI should remain stable at 0.2%.
- Annual headline CPI should increase at a slower pace of 3.1% from 3.3% in May.
- Annual core CPI is expected to grow steadily at 3.4%.
- Weekly Jobless Claims for the week of July 5:
- Initial Claims are expected to head to 236,000 from 238,000.
- Continuing Claims are seen heading to 1.860 million from 1.858 million.
- US CPI for June:
- At 15:30 GMT, President of Federal Reserve Bank of Atlanta Raphael Bostic participates in a moderated conversation at the NCUA's Diversity, Equity, and Inclusion Summit in Minneapolis, United States.
- Equity markets are gearing up for the next earnings season, which gets underway with earnings from Pepsico and Delta before the opening bell on Thursday. Equities overall are in a good mood with solid gains in Asia and positive returns in Europe, while US futures are lagging a touch.
- The CME Fedwatch Tool is broadly backing a rate cut in September despite recent comments from Fed officials. The odds now stand at 70.0% for a 25-basis-point cut. A rate pause stands at a 26.7% chance, while a 50-basis-point rate cut has a slim 3.3% possibility.
- The US 10-year benchmark rate trades at 4.28% and remains near the lower level for the week.
US Dollar Index Technical Analysis: Make or break for September
The US Dollar Index (DXY) faces a key pivotal moment with the US Consumer Price Index release for June. This is the make-or-break moment for September rate cut prospects, with any uptick snapping the disinflationary trajectory that would mean that September meeting is off the table. So, expect markets to give a more significant probability of a further easing of the DXY than a stronger US Dollar.
On the upside, the 55-day Simple Moving Average (SMA) at 105.14 remains the first resistance. Should that level be reclaimed again, 105.53 and 105.89 are the following nearby pivotal levels. The red descending trend line in the chart below at around 106.23 and April’s peak at 106.52 could come into play should the Greenback rally substantially.
On the downside, the risk of a nosedive move is increasing, with only the double support at 104.81, which is the confluence of the 100-day SMA and the green ascending trend line from December 2023, still in place. Should that double layer give way, the 200-day SMA at 104.41 is the gatekeeper that should catch the DXY and avoid further declines. Further down, the correction could head to 104.00 as an initial stage.
US Dollar Index: Daily Chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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