Market participants now turn their focus to U.S consumer inflation

 ​There are just over 2 weeks to go before the Federal Reserve’s Jackson Hole Symposium and investors are buying U.S dollars on the premise that the Fed will set the stage for tapering in September. The U.S economy came roaring back this summer as vaccinations increased. 

Last week’s strong non-farm payrolls report sealed the deal for bets on monetary tightening.

Consumer prices are due for release today and a good number would reinforce expectations for taper in the fall, driving the dollar higher. USD/JPY, which rose to its highest level in 3 weeks could extend its gains towards 111 while EUR/USD, which dropped to its lowest level since April could continue to slide towards 1.16. With that said, traders need to beware of a possible US CPI miss. Last month, consumer prices rose at their fastest pace in nearly 13 years and after such a rapid increase, a slowdown is likely. Lumber prices which hit a record high of $1515 in late May have fallen 69%. 

Used car prices also fell -2.6% month over month in July according to the Manheim Used Vehicle Index which analyzes more than 5 million used vehicle transactions annually.

CPI is still expected to increase as firms pass on higher costs to willing price takers but on a year over year and even month to month basis, the pace of growth should slow ever so slightly.

EUR/USD sank to a 4 month low on the back of the German ZEW survey. Although the current conditions index improved to 29.3 from 21.9, the expectations component fell for the third month in a row. The decline from 63.3 to 40.4 was much greater than expected. Investors are worried that the Delta variant could cause a fall slowdown in Germany. 

The best performing currency was the Australian dollar which shrugged off a sharp decrease in business confidence and more restrictions in Australia. The government expanded the COVID lockdown to rural areas outside of Sydney on concerns that the virus has spread beyond city limits. 

The Canadian dollar strengthened against the greenback yesterday as oil clawed back some recent losses and the U.S Senate passed a $1 trillion infrastructure package, with the currency recovering from its weakest level in nearly two weeks. 

U.S stock markets rose to record highs after the Senate passed a bipartisan package that could provide the nation's biggest investment in decades in roads, bridges, airports and waterways.

Euro - EUR

The single currency fell yesterday as Germany's ZEW survey found investor sentiment deteriorated for the third month in a row in August due to fears that rising COVID- 19 infections could hold back the recovery in Europe's largest economy. Market participants now turn their focus to U.S consumer inflation data. Overall, the EUR/USD traded with a low of 1.1733 and a high of 1.1767 before closing the day around 1.1735 in the New York session.

Yen - JPY

The Japanese Yen fell after upbeat U.S jobs data bolstered expectations that the Federal Reserve could soon start tapering its massive bond-buying program. U.S job openings, a measure of labor demand, hit a record high in June while hiring also increased, the Labor Department said in a monthly survey on Monday. Overall, the USD/JPY traded with a low of 110.00 and a high of 110.33 before closing the day around 110.26 in the U.S session.

British Pound - GBP

The British Pound rose to an 18-month high against the euro yesterday as signs of economic recovery and falling COVID-19 rates spur expectations of a far earlier interest rate lift-off compared to the eurozone. Against the dollar, the pound hovered near two-week highs. Sterling has performed well in recent weeks as a fall in COVID-19 cases. Overall, the GBP/USD traded with a low of 1.3839 and a high of 1.3892 before closing the day at 1.3844 in the New York session.

Canadian Dollar - CAD

The Canadian Dollar strengthened against the greenback as oil clawed back some recent losses and the U.S Senate passed a $1 trillion infrastructure package, with the currency recovering from its weakest level in nearly two weeks. Canada sends about 75% of its exports to the United States, including oil, which has been pressured in recent weeks. Overall, USD/CAD traded with a low of 1.2528 and a high of 1.2585 before closing the day at 1.2573 in the New York session.

Australian Dollar - AUD

The Australian Dollar continued to play second fiddle to the U.S dollar today, though a sharp divergence in the fortunes of their domestic economies was favoring the kiwi for now. In Australia, the economic recovery has been upended by the Delta variant with Melbourne today forced to extend its lockdown by another week and Sydney no nearer to opening. Overall, AUD/USD traded with a low of 0.7326 and a high of 0.7362 before closing the day at 0.7331 in the New York session.

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