USDCNH surpasses 7.2500 as China’s CPI drops to 2.1%

• USDCNH has overstepped the critical hurdle of 7.2500 as China inflation has plunged to 2.1%.
• China's CPI has remained lower than the estimates of 2.4% and the prior release of 2.8%.
• The risk impulse is turning cautious as investors await US mid-term elections outcome.

The USDCNH pair rebounded from 7.2350 and has now crossed the 7.2500 hurdle as the National Bureau of Statistics of China has reported the Consumer Price Index (CPI) at 2.1% . The inflation rate has remained lower than the estimates of 2.4% and the prior release of 2.8%.

A decline in the inflationary pressures is expected to compel the People’s Bank of China (PBOC) to announce a dovish policy ahead. This will be supportive of the economic prospects that are facing the headwinds of no tolerance for Coivd-19 policy. Also, vulnerable real estate demand will find fresh demand from individuals.

Meanwhile, the risk profile has dented marginally as investors have shifted their focus towards the announcement of the US mid-term elections outcome. The contest for 435 seats of the House of Representatives and 35 seats of the house of Senate has triggered anxiety among the market participants.  A majority win of Democrats will keep maintaining political stability in the US while the odds are favoring Republicans to have some power in clearing bills and passing laws.

The US dollar index (DXY) is displaying a subdued performance as the upside is being capped on expectations of easing inflationary pressures in the October Consumer Price Index (CPI) report. A sheer decline in consumer spending is responsible for lower short-term inflation projections. This is going to impact the projections for the extent of the rate hike in the December monetary policy.