US CPI data in focus ahead of Fed meeting next week

September 13, 2023 (MLN) Market participants all around the world have their eyes fixed on the U.S. Consumer Price Index (CPI) data that is due to be released today at 05:30pm PST.

This will be important for the upcoming Federal Open Market Committee (FOMC) meeting which will be held next week, wherein another pause is the most likely outcome.

However, the CPI data may not support this view. Already the estimates paint a complicated picture: annual core inflation is expected to ease to 4.3% from 4.7%, but headline inflation is predicted to rise to 3.6% from 3.2%, Reuters reported.

To note, the U.S. CPI for the month of July 2023 came in at 3.2% YoY, compared to 3% YoY in June.

Meanwhile, on a sequential basis, US CPI increased by 0.2% MoM.

Moreover, the labor market remains tight by many measures and the climb in crude oil is a concern.

About one in five of the economists in the Reuters poll say another hike is coming by year-end, which gels with what Fed chief Jerome Powell said in Jackson Hole about the potential need for more tightening.

It is a crucial week and a half for the world's biggest central banks, with the Fed decision on Wednesday next week followed by the Bank of England on Thursday and the Bank of Japan on Friday.

For Andrew Bailey and his cohorts, today will be a busy one for analyzing data that includes GDP and factory production.

But starting things off, of course, is the ECB tomorrow. And markets have had a big change of heart on the outcome over the past 24 hours, with what had been judged a coin toss for a quarter-point rate hike jumping to 75% odds after a Reuters report that the central bank expects inflation will stay above 3% next year in its updated forecasts, far exceeding the 2% target.

For currency markets in Asian time, the dollar was on the front foot, clawing back some of the overnight weakness against the euro and climbing back toward a 10-month top versus the yen.

Sagging stocks though don't bode well for the European open, as Asian investors continued the sell-off seen on Wall Street. China set the pace, with mainland blue chips (CSI300) down about 1%.

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