North American FX Open - Dollar in buoyant mood heading into US CPI update

The DOLLAR continues to be October's stand-out G10 currency performer, with the DXY approaching the 103.000 level in overnight trade, a level it hasn't been above since mid August. The release yesterday of the FOMC minutes from the September 18th semi-surprising 50bps cut, showed that there was a preference among some officials to cut rates at a more gradual 25bps pace, possibly due to the economy remaining remarkably resilient even in the face of what Fed officials call "restrictive" policy. Meanwhile, in comments overnight, Daly said she expects the Fed to continue lowering interest rates this year in an effort to protect the labor market and Collins reiterated her view the Fed should take a "careful, data-based approach" as they lower rates to help preserve the strength in the economy.

Also overnight, the PBOC set up a Usd 70bln-plus swap facility to provide liquidity to institutional investors to buy stocks amid hopes/expectations that Beijing will announce fresh fiscal measures to further boost the Chinese economy Saturday.

Meanwhile, in the news again, Republican presidential candidate Donald Trump said he would end US income taxes on Americans living in other countries, the latest in a string of tax proposals in the final stretch of the 2024 campaign.

The AP reports more than 2mln homes and businesses are without power due to Hurricane Milton.

The main market focus today is the US September CPI report. The headline rate is expected to slow further to 2.3% y/y, from 2.5% y/y in August, but the core rate is forecast to come in unchanged at 3.2% y/y. An interesting aside from Bbg who wrote ahead CPI inflation has historically outpaced PCE inflation by 0.4%. Adjusting for this wedge, a CPI read of 2.3% would be a first print since March 2021 that isn’t above a level consistent with the 2% target in PCE terms.

Weekly jobless claims are also due.

There is also the release of the ECB's account of their September meeting, which delivered the widely expected -25bps cut in the deposit rate. New estimates then showed a weaker growth outlook and more stubborn core inflation, but that was before weak data and slowing CPI updates increased the possibility of an October move, so overall we expect little material forward guidance.

We also hear from the Fed's Cook, Barkin and Williams, as well as the SNB's Martin.

---- Subscribe to read more ----

To receive this analysis plus much more, subscribe to IGM. Request your free trial of the service today.