The Dollar has weakened ahead of today’s US inflation release, allowing Sterling and the Euro to recover some of their recent losses against it. Comments from Federal Reserve officials yesterday reduced expectations of another interest rate rise this month. Markets currently expect the Fed to keep rates unchanged at its October meeting.
Today’s main release is US CPI inflation, due at 1.30pm UK time. Headline inflation is expected to rise from 3.4% to 3.6%, partly because of higher energy prices. Core inflation, which excludes food and energy, is forecast to increase from 2.4% to 2.5%. These figures will help the Fed assess whether inflation is mainly being driven by energy costs or whether prices are rising more widely.
If inflation comes in higher than expected, markets could increase their expectations of another Fed interest rate rise. This could strengthen the Dollar, making it more expensive to buy Dollars with Pounds or Euros. However, recent weakness in the US jobs market could make the Fed more cautious about increasing rates. Lower than expected inflation would support the case for keeping rates unchanged and could weaken the Dollar further.
In Germany, wholesale prices rose by 1.9% in September compared with the previous month, above the expected 0.7% increase. This means prices for goods sold to businesses have increased more than expected. Some of these costs could eventually be passed on to consumers, although the increase does not mean consumer prices will rise by the same amount.
Later today, Fed officials Michelle Bowman and Thomas Barkin are scheduled to speak. Markets will listen for their views on inflation and whether another rate rise is needed. The Fed will also publish its Beige Book at 7pm UK time. This report summarises conditions across the US economy, including whether businesses are hiring, how much consumers are spending and how prices are changing.