Dollar likely to benefit again if inflation really does surprise to the upside – Commerzbank

The climax of the week is no doubt going to be the US inflation data for October, due for publication on Tuesday.

If inflation really does surprise to the upside the Dollar is likely to benefit again, as this would make a further Fed rate hike more likely again. On the other hand, inflation is unlikely to surprise so significantly that a further rate hike becomes a fait accompli. Following Tuesday’s data, there will be another labor market report and new inflation data prior to the next Fed meeting, and this data too is likely to be decisive for the overall picture.

The real economy is also likely to begin reflecting the effects of the rate hikes over the coming weeks. Retail Sales due for publication on Wednesday might kick things off, with our economists expecting a bigger decline than the Bloomberg consensus. Presumably higher than higher-than-expected inflation rates are likely to dominate over weaker Retail Sales. In the coming weeks, however, it is likely to become apparent that the Fed will not implement further rate hikes and that interest rate cuts are becoming more of an issue. At that point, the Dollar is also likely to ease again.