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  • richard evans

Attention on US inflation data today

Good morning

The currency markets have been remarkably stable since I sent my report yesterday morning. When I say stable, we have seen some swings but no major panic. GBPUSD traded to 1.1130 yesterday evening, has slipped a bit to 1.1070, EURUSD seems happy 20 pips or so either side of 0.9700.

USDJPY remains firm, it traded within a few pips of 147.00 late yesterday, now 146.75. No intervention but I do wonder whether it will be on the agenda at the IMF meeting today. Mind you with US inflation running high the US won’t be too keen to weaken the dollar to accommodate others.

Attention today of course will be on US inflation numbers for any clues as to whether Fed look like overshooting with their rate rises or whether, as they keep telling us, more needs to be done. Feds Bowman has said sizeable rate rises are on the table unless inflation falls, while Fed minutes showed members are still worried about persistently high inflation. So far markets still look for a 75bps rate rise in November. Risks seem to be reasonably balanced but it is worth noting that USD has tended to rise after the release of US inflation data.

A slight drop in the headline number to 8.1% is expected compared to 8.3% last time, although core CPI is expected to tick up from 6.3% to 6.5%. A rise in core monthly inflation of 0.5%m down from 0.6% last time, also one to watch. All looks a bit too easy, sell USD if number is weak, buy USD if number as expected or higher.

Some potentially big days coming up for GBP as BoE support in gilt markets may end Friday. Kwarteng has said BoE will be to blame if markets fall next week as a result of support being withdrawn. Lets see if Mann responds to that when she speaks at midday. Kwarteng is meeting IMF officials today after their damning comments on the mini-budget. It is still not clear whether BoE will actually withdraw support, there are many that believe BoE could be forced to step in again to calm markets, surely as the central bank they cannot ignore extreme volatility if we were to see it. Still pressure on Truss /Kwarteng to change or withdraw their tax-cuts.

We continue to look at downside GBPUSD structures. There is a fear of getting it wrong but we have an array of trades both short and medium term that give decent dollar purchase levels but with protection just in case GBP does pop higher.

Schools and other public venues in Shanghai have closed as Covid cases there jump to a three month high. No surprise that markets in China have traded lower. We will have china inflation and trade data out early tomorrow morning, looking for a headline surplus around $80bn.

- 12.00 BoEs Mann speaks

- 13.30 US CPI, initial jobless claims

- 22.30 NZ business PMI

- 02.30 China CPI, trade balance

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