Weaker-than-expected US CPI report to trigger a deeper correction lower for the USD – MUFG

Markets have put downside pressure on the USD ahead of the US Core Price Index (CPI) release. Economists at MUFG Bank expect a weaker-than-expected report to trigger a deeper correction lower for the greenback.

Hawkish repricing of ECB rate hike expectations narrows policy divergence with the Fed

“The hawkish repricing of European Central Bank rate hike expectations is helping to narrow policy divergence with the Fed and offering more support for regional currencies against the US dollar, although we are not connived that it will prove sufficient on its own to trigger a more sustained reversal lower for the US dollar.”

“The US rate market is still confident that the Fed will continue to front-load policy tightening through the remainder of this year by delivering a third consecutive 75 bps hike on 21st September. The US CPI report for August will pose the main challenge to that view. A second consecutive weaker-than-expected US CPI report could trigger a deeper correction lower for the US dollar in the week ahead.”

See – US CPI Preview: Forecasts from 12 major banks, inflation begins to ease