Daily Market Pulse

The US Consumer Price Index (CPI) data released this morning shows signs that inflation remains stubbornly above the Fed’s target rate and affirms the FOMC’s theme of 'higher for longer' with regard to interest rate policy.

The CPI for September is unchanged from the August reading, coming in at 3.7% on a year-over-year (YoY) basis, 0.1% higher than the median survey.

The month-over-month (MoM) reading, similarly, is higher than expected at 0.4%, although this is still a decline from the prior 0.6% figure. Excluding food and energy prices, commonly known as the core CPI, both the YoY and MoM readings meet market expectations, with the former dropping by 0.2% to 4.1% and the latter remaining unchanged at 0.3%.

While this data is not a major surprise, when combined with the recent blowout US jobs numbers and yesterday’s stronger than expected PPI data, the common theme is that the path to the Fed’s 2% inflation target still requires a continuation of their restrictive monetary policy for some time, as has been repeatedly indicated by the FOMC and Chair Powell.

The market reaction so far has been somewhat muted, with the USD marginally higher across a basket of currencies, US equities unchanged, and Treasury yields slightly higher.

EUR/USD is lower on the day following the US CPI release. Adding to this pressure is the release of ECB meeting minutes earlier today that imply a more dovish tone with respect to the likelihood of future rate increases.

USD/CAD is higher on the day in line with general USD strength, even as oil prices rebound slightly. Existing Canadian home sales data is due to be released tomorrow at 9 am EST.

GBP/USD is lower on the day in line with its G-10 peers, even as Bank of England Chief Economist Huw Pill’s comments this morning regarding inflation. Pill said that UK inflation remains too high and that the BoE is 'not done, premature to talk about the unwinding.' Nonetheless, this hawkish rhetoric has not been enough to support the Pound after the US CPI data.

USD/MXN is higher on the day, although local manufacturing data has softened the move somewhat. Industrial production for August YoY grew to 5.2% from the prior 4.8%. A drop to 4.5% was expected in an analyst survey.

USD/BRL the market is closed for a local holiday, although offshore Non-Deliverable-Forward (NDF) activity indicates a higher rate in line with peers.