Dollar Mixed Ahead of CPI 

Economists expect the Core Month-over-Month figure to come in at 0.2%, a slight reduction from the August figure of 0.3%, and the Core Year-Over-Year figure to come in at 2.5%, a slight increase from the August figure of 2.4%. Traders are watching this release closely in an attempt to glean some information regarding the Federal Reserve’s interest rate path. It is unlikely that the Fed makes any move at their October meeting, but Traders are continuing to price in an additional interest rate hike by year’s end. This is supported by yesterday’s comments from President of the Federal Reserve Bank of New York John Williams who stated that he continues to see an additional hike this year as appropriate. He would go on to say that as of right now he does not believe that it will be necessary for the Fed to continue to hike rates in 2027, thereby signaling to Traders that December could mark the end of this tightening cycle.

What to Watch This Week…

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The complete Economic Calendar can be found here.

GBP

The British Pound is up against the Dollar this morning following comments from Bank of England Chief Economist Huw Pill. Traders are currently pricing 100 bps of monetary tightening from the Bank of England over the next twelve months, but Pill stated that he is skeptical that such action will be necessary. He did comment that the BoE should have acted sooner in response to the energy shock triggered by the U.S.-Iran conflict, but that more data was necessary before taking drastic action with regard to interest rates. Pill’s comments triggered a rally in shorter dated U.K. government bonds (Gilts), with the 2- and 10-year yields falling by 5bps each.

EUR

The Euro is down against the Dollar this morning after European Central Bank President Christine Lagarde stated that the ECB intends to take a measured response to the energy shock and subsequent inflationary impact of the U.S.-Iran conflict, and that second-round effects have not yet materialized. This has resulted in skepticism that the ECB will hike interest rates as aggressively as many Traders are currently anticipating. In contrast with Lagarde’s comments, ECB Governing Council member and Governor of the National Bank of Belgium Pierre Wunsch stated this morning that the ECB will ‘probably’ need to hike interest rates further, but his conditional tone on the matter reinforces the idea that any tightening will fall short of Trader expectations.