Global overview
The US dollar was moderately higher overnight as headline inflation came in slightly above expectations but a cooling in core inflation means that market pricing suggests the Federal Reserve is unlikely to raise rates next week. Instead, all the focus is on the European Central Bank, with a critical decision on interest rates due tonight.
Global markets mostly unmoved by US inflation
FX markets shrugged off a higher-than-expected headline inflation report from the US overnight with markets seemingly focused on the ongoing cooling of core inflation.
While the annual headline number was above expectations – at 3.7% in August versus 3.6% in July due to higher energy prices – the core number fell from 4.7% to 4.3%.
The pricing for a Federal Reserve rate hike next week has fallen to 3.0% while a November hike fell from around a 50% chance on Tuesday to 40% after the inflation release.
US shares saw small gains, US bond yields fell, and the US dollar gained moderately.
ECB decision key for euro
The European Central Bank (ECB) looks most likely to raise interest rates by 0.25% tonight with the deposit rate climbing to 4.00% and the main refinancing rate to 4.50% – market pricing sees a 64% chance of a hike (source Refinitiv)
However, due to recent weak economic data and concerns from influential figures like Isabel Schnabel, there’s a chance the ECB might not move – this uncertainty might drive EUR volatility overnight.
The ECB has been gradually raising rates to control inflation, but it seems the central bank is nearing the end of this process.
The main reason for the ECB to hike tonight is that their economic projections for 2025 still show inflation above their target of 2%. Overnight, leaked projections signaled a potential further increase in inflation projections.
After repeatedly stating their commitment to bringing inflation back to target, failing to raise rates despite these higher projections could harm their credibility.
Australian jobs, US retail sales also due
Away from Europe, key releases are due from Australia and the US.
From Australia, the August jobs report is due at 11.30am AEST, with the market looking for 23k new jobs to be added and the unemployment report seen steady at 3.7%.
The Australian employment market remains mostly strong with the monthly report beating forecasts in four of the last six releases.
Overnight, US August retail sales are due, with this release recently showing signs of weakness.
USD losing momentum after record weekly run
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 11 – 16 September
All times AEST
Have a question? [email protected]
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
