OVERVIEW : Wednesday, August 12th, 26’
Financial markets remained cautious as optimism around a reopening of the Strait of Hormuz continued to fade, with Iran reiterating that the strait will remain closed until its conditions are met. Further attacks on shipping in the region reinforced concerns over the durability of the ceasefire, while Trump’s claim that the US has “total control” over Hormuz added to the uncertainty. Reports of a possible ceasefire extension briefly improved sentiment, but the move was reversed after Iranian sources denied that talks over an extension were taking place. Crude prices ultimately settled little changed as conflicting reports continued to shape expectations around the US-Iran situation. The US CPI came in broadly in line, with core CPI at 0.2% M/M and 2.5% Y/Y, providing little new information for September FOMC pricing and leaving markets with a roughly balanced view on a hike.
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US DOLLAR
USD was firmer on the day following the broadly in-line July CPI report. The initial reaction was lower, but the Dollar reversed higher as the market reassessed the implications for Fed policy. Core CPI came in at 0.2% M/M and 2.5% Y/Y, keeping the debate around further tightening alive, although the recent weak NFP has raised the bar for upcoming inflation data to materially shift September expectations. Fed’s Collins added to the hawkish tone, saying the Fed may need to raise rates to contain inflation. While September hike pricing remained relatively balanced and moved somewhat dovish after the CPI release, a 25bp hike remains fully priced by year-end, leaving the Dollar with some policy support.
Data:
- US Core CPI (Jul MM) 0.2% vs. Exp. 0.2% (Prev. 0.0%). 3dp: 0.215% (prev. -0.017%).
- US CPI (Jul MM) 0.1% vs. Exp. 0.1% (Prev. -0.4%). 3dp: 0.074% (prev. -0.422%).
- US CPI (Jul YY) 3.4% vs. Exp. 3.4% (Prev. 3.5%).
- US Core CPI (Jul YY) 2.5% vs. Exp. 2.5% (Prev. 2.6%).
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EURO
EUR was flat on the day, with little reaction to the German and Italian CPI releases as both came in broadly in line with expectations.
Data:
- German Current Account (Jun) 19.0 (Prev. 10.4).
- German HICP Final (Jul YY) 2.8% vs. Exp. 2.8% (Prev. 2.4%).
- German HICP Final (Jul MM) 0.9% vs. Exp. 0.9% (Prev. -0.2%).
- German CPI Final (Jul YY) 2.8% vs. Exp. 2.8% (Prev. 2.3%).
- German CPI Final (Jul MM) 0.8% vs. Exp. 0.8% (Prev. -0.3%).
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GREAT BRITISH POUND
GBP was well supported in early sessions, but the post-CPI move toward a stronger USD weighed on Sterling and capped the upside
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AUSTRALIAN DOLLAR
AUD outperformed on the day, extending support from yesterday’s hawkish RBA messaging. The RBA’s decision to hold rates at 4.35% was accompanied by a clear willingness to hike again if inflation risks persist, with Governor Bullock stressing that a further increase remains possible and that rate cuts were not discussed.
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CANADIAN DOLLAR
CAD had choppy price action on the day, largely tracking movements in energy prices as oil fluctuated against the shifting US-Iran geopolitical backdrop.
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NEW ZEALAND DOLLAR
NZD was sold on the day, with AUD attracting relatively stronger demand across the two cyclical currencies.
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JAPANESE YEN
JPY was supported going into US CPI, ultimately closing marginally higher despite the stronger USD following the US CPI print. Improved Japanese business confidence , with both manufacturing and non-manufacturing sentiment strengthening on firmer semiconductor demand and domestic activity. Rising expectations for a September BoJ hike, now priced at around 59%.
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SWISS FRANC
CHF continued to underperformed on the day as the lack of demand for a no-yielding safe haven continued to weigh on the single currency.