This year, the hawkish stance of the US Federal Reserve (FOMC) combined with rising bond yields had established a strong uptrend for the dollar. However, the trend has reversed as we enter the fourth quarter. The US Dollar Index has not only broken below the 10-day moving average, but it has also clearly slipped beneath the 21-day moving average.
The geopolitical risk in the Middle East that erupted over the weekend is still escalating and casting a shadow over the markets. This situation creates conditions where the aggressive interest rate hike stance could easily be put on hold. Moreover, recent comments from financial authorities in both the US and Europe have increasingly suggested a pause in the interest rate increase trend. We are also approaching a time when large institutional investors are likely to repatriate their funds.
One contributing factor to the decline in US bond yields and the weakening of the dollar is the clear trend of decreasing headline inflation. In this context, the results of the September US Consumer Price Index (CPI), set to be released today, are becoming a critical point. Market expectations are that the year-on-year increase will slow down to +3.6% from the previous +3.7%. The core CPI is also anticipated to slow down to +4.1% from the previous +4.3%. Given the high level of attention this index receives, even a 0.1% deviation from market expectations could provoke a sharp market reaction. It’s something to watch closely.
In the upcoming overseas market reports, the focus remains on the United States. In addition to the US Consumer Price Index mentioned above, the initial jobless claims will be reported. In terms of the oil market, the US Energy Information Administration will release its weekly petroleum inventory statistics.
Stay tuned for market movements after the release of the September US Consumer Price Index (CPI).