US Dollar May Rise on CPI, Trade Wars and Emerging Markets Stress



US Dollar upcoming economic data calendar


  • US Dollar buoyed by upbeat financial knowledge, safety-seeking demand
  • CPI knowledge echoing wage development uptick could enhance Fed outlook additional
  • Trade wars, rising markets jitters would possibly delay danger aversion

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The US Dollar accelerated increased final week as market sentiment deteriorated and Fed charge hike expectations firmed, chatting with the dollar’s haven and yield attraction (as expected). Emerging market shares and currencies plunged amid worries {that a} US-led rise in borrowing prices could destabilize a number of key sovereigns, together with Turkey, Brazil and Russia. That supplied help from safety-seeking flows.

Meanwhile, ISM knowledge confirmed quicker manufacturing- and service-sector exercise development than economists predicted, setting the stage for fireworks as Augusts’ jobs report hit the wires. Perhaps most critically, the discharge confirmed that wage inflation soared to a nine-year excessive of 2.9 p.c unexpectedly (though suspicions were entertained forward of the discharge). This bolstered priced-in Fed charge hike bets.

Looking forward, Augusts’ CPI statistics take high billing on the financial calendar. Consensus forecasts envision a downtick from 2.9 to 2.8 p.c. If the spike in wages proves to be indicative nonetheless, an upside shock could also be within the playing cards. That might enhance conviction in a December charge improve. As it stands, the futures-implied chance of such an consequence stands at 67 p.c, the best in a month.

Furthermore, potential risk-off catalysts abound. An upshift within the projected Fed tightening cycle could proceed to sow discord in rising market belongings. Trade conflict escalation is a concurrent fear after US President Trump threatened an extra $267 billion in anti-China tariffs to observe the $200 billion top-up nonetheless pending deployment. Eurosceptic triumph in upcoming Swedish elections could also be one other flashpoint.

On stability, this appears supportive for the US forex. Still, whereas a tectonic shift within the Fed outlook is unlikely with out an improbably dramatic knowledge miss, sentiment tendencies may be fickle. Even a comparatively modest win on this entrance – like Canada’s ascension to a revised NAFTA accord or a Brexit negotiations breakthrough – could eat into the Dollar’s haven-based help. Proceeding with warning appears prudent.

— Written by Ilya Spivak, Sr. Currency Strategist for

To contact Ilya, use the feedback part beneath or @IlyaSpivak on Twitter



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