Low Volatility Expected Until US Consumer Inflation on Thursday

FED rate hike is priced in for 75 bps on November 2, so markets should be stable until Thursday when the CPI inflation report is released

Skerdian Meta•Sunday, October 9, 2022•2 min read

Where is Powell going to send the USD today?

Last week we saw some decent moves, although the volatility was lower than in the previous week and lower than in September. The economic data from the US was sort of mixed, leaning more on the positive side which keeps the FED on the current tightening path, with one 0.75% rate hike planned for the coming meeting and another hike by 0.50% in the following meeting.

This week the economic calendar from the US is light, with the PPI (producer price index) report to be released on Wednesday, followed by the FOMC minutes form the last meeting, although the comments there are history now, since we’re approaching the next FED meeting and a lot of comments have been made since then.

The decision for a 75 bps hike on November 2 is almost made, although the market is worried more about the path the FED will follow after that hike. Will they keep the pace of such strong hikes, will they slow down or will they stop altogether?

The next consumer inflation report CPI (consumer price index) might get the markets moving in either direction, which will be released on Thursday. Consumer price data for September will have a mixed feel, analysts believe. Headline CPI is seen rising 0.2% M/M, picking up from the prior rate of 0.1% in August, but the annual headline is seen paring back to 8.1% Y/Y from 8.3%.

Core CPI is expected to come out mixed as well, with the street estimating a monthly rise of 0.5% M/M (prev. 0.6%), though the annual measure of core inflation is likely to pick-up to 6.5%. The data will be one of the last pieces of the puzzle officials will want to see ahead of the November 2nd FOMC, where money markets currently price in a greater chance of another 75bps rate rise, which would take rates to 3.75-4.00%, rather than a ‘smaller’ 50bps increment.

Amid the softer tone of some incoming data points recently (ISM manufacturing, JOLTs data), as well as activism from some global jurisdictions (BoE for instance, while Japan’s government has also been active in FX) on financial stability concerns, there have been some hopes that the Fed will relent on hawkish policy. However, commentary from Fed officials has been resolute in its focus, with all officials generally arguing that the central bank remains fixed on inflation, and will continue lifting rates until the fight against surging prices has been won – even if that means tilting the US economy into a recession.

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Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.