Gold is back under pressure following a relief rally to the weekly 61.8% Fibo. Bulls will be seeking space above $1,800 but the Fed is still a long way off from its target despite today's CPI miss of expectations. 

Federal Reserve's Neel Kashkari: said while he is happier to see inflation surprised to downside, the Fed is far far far away from declaring victory on inflation. He added that ''this doesn't change my rate hike path'', and he is expecting 3.9% end of this year 4.4% end of next year.

The idea of rate cutting next year is not realistic. he said the Fed will raise rates and leave until inflation is well on its way to 2%. 

More to come...

 

The NZD/USD is advancing more than 2% on Wednesday, courtesy of broad US dollar weakness. Investors’ mood shifted positively once US inflation cooled down, while traders expected a less aggressive US Fed. US headline inflation and core CPI were lower and aligned with estimations. Fed’s Evans expects the Federal funds rate (FFR) to finish around 3.25-3.50% in 2022.

According to the Federal Reserve Bank of Atlanta's GDPNow model, the US economy is expected to grow at an annualized rate of 2.5% in the third quarter, up from 1% in the previous estimate.

"After recent releases from the US Bureau of Labor Statistics and the US Census Bureau, the nowcast of third-quarter real personal consumption expenditures growth, third-quarter real gross private domestic investment growth, and third-quarter real government spending growth increased from 1.8% to 2.7%, -0.3% to 0.2%, and 1.4% to 1.7%, respectively, while the nowcast of the contribution of the change in real net exports to third-quarter real GDP growth decreased from 0.35 percentage points to 0.30 percentage points," Atlanta Fed explained in its publication.

Bank of England Chief Economist Huw Pill said on Wednesday that wage growth in the UK is running too fast at present, as reported by Reuters.

Pill further noted that the companies' pricing pass-through was excessively high. "I don't want people who are subject to political forces setting monetary policy," Pill added.

The USD/CHF is recording its biggest daily fall since June 15, down 1.16%. The pair refreshes multi-month lows, just below the 0.9400 figure. US headline inflation eases to 8.5% YoY, but the core remains unchanged. Fed’s Evans: The Fed is not done hiking rates; expect the Fed funds to be at 3.25-3.50% by year-end.

Despite the broad-based slide of the US dollar on Wednesday following the US CPI, analysts at Rabobank still see the GBP/USD vulnerable to the downside and warn it could drop back again under 1.20 on a one to three-month view. 

Japanese yen soars across the board after economic data. July US CPI rises below expectations triggering a rally in Treasuries. GBP/JPY trims losses after falling to as low as 161.67, the lowest since August 5.

"At the end of this year, I expect fed funds to be 3.25%-3.5%."

"I expect by end of next year rates will be 3.75%-4%."

"I expect fed funds rate to top out at 4%."

"We are in a good place on rates, can pivot to be more restrictive if needed, or not raise rates as much."

"We are well positioned for turns in the data over the next couple of months."

"It will be challenging to get inflation down."

Chicago Fed President Charles Evans acknowledged on Wednesday that the latest CPI data was the first positive inflation report but noted that inflation was still unacceptably high, as reported by Reuters.

The US Consumer Price Index surprised to the downside in July, showed data released on Wednesday. Analysts at Wells Fargo point out that falling prices for gasoline, used autos and travel service categories such as airline fares, car rentals and lodging away from home helped cool monthly inflation from the torrid pace seen in May and June. They consider it will take several more soft inflation prints before the FOMC begins to feel confident that it is getting price pressures in check. They expect at least a 50 bps rate hike at the September meeting.

USD/CAD plummets after hitting a daily high near the 1.2900 mark. July’s US Consumer Price Index (CPI) slows to 0% MoM. Despite US inflation data, ING Analysts expect the Fed to hike 75 bps in September. Fed’s Evans and Kashkari will cross wires late during the day.

The USD/JPY collapse following the release of US inflation data. The numbers triggered a sell-off of the US Dollar across the board pushing the pair toward 132.00

Before the release of the US CPI, USD/JPY was trading near 135.00. Recently it bottomed at 132.00. The pair is back into negative territory for August. Below 132.00 attention would turn to the 100-day Simple Moving Average at 131.05/10. The mentioned SMA capped the downside a week ago. 

The move lower took place amid a broad-based decline of the dollar that is still going on. The DXY is falling more than 1.50%, as it trades under 104.70. The US 10-year yield is at 2.74%, after bottoming at 2.67%. 

Lower yields, risk appetite and expectations of a less aggressive Federal Reserve weighed on the USD/JPY. The annual US CPI rate dropped from 9.1% to 8.5%, against the market consensus of 8.7%. Analysts at Commerzbank, point out that inflation has probably passed its peak. “However, the...

US inflation has finally come down, on all measures.  Stocks are up and the dollar is down in the immediate reaction. Fed officials will likely clarify the fight against inflation continues.  The current moves could reverse sharply. 

A downside surprise in Consumer Price Index (CPI) data has triggered an epic collapse across USD pairs. The question is whether this will stick. Economists at TD Securities have some reservations about that but nonetheless think short-term price action will reflect risk sentiment.

US President Joe Biden said on Wednesday that they are seeing some signs that inflation may be moderating, as reported by Reuters.

"We could face additional headwinds in the months ahead," Biden added. "We still have work to do but we're on track."

Earlier in the day, the data published by the US Bureau of Labor Statistics showed that the annual Consumer Price Index (CPI) declined to 8.5% in July from 9.1% in June. 

The index depreciated rapidly after US inflation figures showed the headline CPI rose less than initially expected in July. Indeed, consumer prices rose 8.5% and 5.9% when it comes to the core reading, both prints slowing the upside traction from the previous month.

The perception that inflation pressures might be at or near their peak seems to have prompted investors to re-price the possibility of a large rate hike (75 bps) at the next FOMC event in September. This view was also reflected in the marked correction lower in US yields across the curve, which in turn added to the buck’s daily decline.

Supporting the above, CME Group’s FedWatch Tool now shows the probability of a 75 bps rate hike in September is at nearly 39% from around 70% prior to the CPI release.

Extra data in the US calendar saw MBA Mortgage Applications expand 0.2% in the week to August 5 and Wholesale Inventories expand 1.8% in June vs. the previous month.

AUD/USD catches aggressive bids amid softer US CPI-inspired broad-based USD selloff. The weaker data smashes expectations for a larger Fed rate hike and weighs on the USD. The risk-on impulse further undermines the buck and benefits the risk-sensitive aussie.

Gold catches aggressive bids in the last hour and jumps to a fresh multi-week high. The post-US CPI broad-based USD selloff provides a goodish lift to the commodity. Diminishing odds for a larger Fed rate hike in September further benefits the metal. The risk-on impulse caps the safe-haven XAU/USD and warrants caution for bulls.

The US CPI data delivered the first sign of peak inflation. Gold hit the highest level in over a month at $1,808 in a knee-jerk reaction to the data. In the view of strategists at TD Securities, a massive CTA buying program may exacerbate the rally in gold. 

EUR/USD quickly left behind the key hurdle at 1.0300 the figure after US inflation figures tracked by the CPI disappointed expectations. Indeed, consumer prices rose 8.5% in the year to July, while the CPI excluding food and energy costs rose 5.9% from a year earlier, coming in also below initial estimates for a 6.1% YoY gain.

 

 

The pair’s sharp upside follows the equally abrupt – although in the opposite direction – decline in the greenback, as investors now perceive that the Federal Reserve might save a 75 bps rate hike for later and raise rates by half point instead at the September gathering.

On the latter, the probability of a 75 bps hike by the Fed in September shrank to around 27% from nearly 70% before the CPI data was published, according to CME Group’s FedWatch Tool.

GBP/USD adds to its intraday gains and rallies to a one-and-half-week high amid a brutal USD selloff. A weaker US CPI report pushed back expectations for a larger Fed rate hike and weighed on the USD. A strong rally in the US equity futures exerts additional downward pressure on the safe-haven buck.