USD 

The dollar declined yesterday following a US inflation print that highlighted the market uncertainty around Federal Reserve rates.

The US Consumer Price Index (CPI) rose 5.4% year-on-year (y/y) compared to the expected 5.3%, with the market clearly expecting different things than the economists. If anything, it seemed fearful of a higher print that might tip the Fed towards tapering in September. 

The inflation numbers came shortly after two Fed members – Chicago’s Evans and Atlanta’s Barkin – pushed back against an earlier taper. Both said they wanted to see a few more months of jobs data.  However, tapering now no longer seems a question of if, but when and how much. The Fed could well start reducing asset purchases as early as October or November, but at a more modest pace than expected. 

Core CPI was in line at 4.3% y/y at a four-month low of +0.3% m/m. Gasoline contributed a 41.8% y/y rise but oil prices have steadied in the past two months.

GBP 

The UK economy grew by 4.8% between April and June as lockdown restrictions eased and most businesses reopened. The GDP expansion has come mainly from retail, restaurants and hotels. 

Chancellor Rishi Sunak stated the economy is on the mend and is showing ‘strong’ signs of recovery, with the UK economy now 4.4% smaller than it was pre pandemic.

Key announcements 

07:00 – GBP- GDP q/q – Actual 4.8% from previous -1.6%

07:00 – GBP – GDP m/m – Actual 1% from previous 0.8%]
13:30 – USD –  PPI m/m – Forecast at 0.6% from previous 1%

13:30 – USD – Core PPI m/m – Forecast at 0.5% from previous 1%

USD – Unemployment claims – Forecast at 375k from previous 385k