Today’s focal event is the release of the August US Consumer Price Index (CPI). Market expectations are for an increase, with a forecasted month-on-month change of +0.6% and a year-on-year change of +3.6%. However, the core index is expected to show a more modest increase, with a month-on-month change of +0.2% and a year-on-year change of +4.3%. Ahead of this event, the USDJPY has been trading firmly in the 147 yen range, with overall buying pressure on the US dollar. If the results suggest that strong inflationary pressures persist, the dollar is likely to maintain its strength. The CPI report is scheduled for release at 9:30 PM Japan time.
Following that, the European Central Bank (ECB) will announce its results tomorrow. This meeting will include the release of staff economic projections. Market attention will be focused on the balance between inflation and growth forecasts. Ahead of this announcement, Reuters reported early this morning that “the ECB is expected to forecast euro area inflation remaining above 3% next year.” This news triggered a rally in the euro. The market had previously been pricing in roughly a 2-to-1 chance of no change versus a 25-basis point rate hike in the ECB’s next move, but that has shifted to around 70% in favor of a rate hike. After the ECB’s decision tomorrow, the market will also closely watch the staff’s inflation projections. It is worth noting that there is an expectation of a downward revision in growth forecasts.
Earlier, a series of UK economic indicators were released, and they painted a grim picture of economic contraction. July’s UK monthly GDP fell by -0.5% month-on-month, compared to the previous +0.5%. The market had expected a -0.3% change. Negative results were seen in various sectors, including mining and quarrying, manufacturing, services, and construction. As a result, the pound has been under selling pressure, which contrasts with the earlier euro buying during the Tokyo session. It will be important to monitor whether the trend of euro buying and pound selling continues during the London market.
For now, the market awaits the results of the US CPI report. Further actions will be considered after its release.