North American FX Open - Dollar takes another leg lower pre CPI

Yesterday's downside miss from the US pipeline inflation report has increased hopes we will see a similar outcome from today's CPI update, which has prompted another leg lower in the Dollar.

The DXY seems to be heading back to the lows recorded in the midst of the market panic on August 5th. Despite yesterday's awful German ZEW investor confidence report, Eur/Usd has pressed on to 1.1029, its highest level since January 2nd.

The RBNZ semi-surprised the markets overnight by starting their easing cycle with a 25bps cut to 5.25%.

The central bank said that NZ annual CPI is returning to within its 1-3% target band and that the pace of further easing will depend on the board's confidence that pricing behavior remains consistent with a low inflation environment, with inflation expectations remaining anchored around the 2% target. The RBNZ’s new forecasts show the average OCR falling to 4.92% in Q4 and to 4.36% by mid-2025. RBNZ governor Orr also added that a 50bps cut was considered.

Nzd/Usd slumped to 0.6003 from near the 0.6080 level, in response to the move.

UK CPI for July came in 0.1% below expectations in the y/y headline and core rates at 2.2% and 3.3% respectively, but it was the much larger than expected fall in services inflation to 5.2% y/y in July, that cheered markets the most and now two more rate cuts in the next three Bank of England meetings are implied. The data helped propel Eur/Gbp back up to 0.8584 from sub 0.8550 levels.

The second look at EZ Q2 GDP kept growth at 0.3%, but June IP missed, coming in at a fall of 0.1% vs the rise of 0.5% expected. The May figure was also revised down to minus 0.9% from the previously reported minus 0.6%.

Meanwhile, Goldman Sachs reportedly stated that the US recession odds are rising, with the firm assigning a 41% probability vs 29% in April.

Elsewhere, Bbg reported that Japan PM Kishida won’t run for a second term as leader of the long-ruling LDP in September, opening the door for a new party member to take over the post of premier.

The US CPI has the floor to itself today, with the headline rate expected to remain at 3% y/y in July, while the core rate is forecast to edge down to 3.2% y/y.

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