Market News

13:24 ET - Weaker-than-expected CPI has changed the market’s view of the Fed’s rate-increase trajectory over the next year or so, Bruce Clark, senior macro strategist at IGM, tells WSJ, with the chance of a 75bp increase trading much lower than yesterday. “The market is also embracing the notion of a Fed pivot to cutting rates in the second half of the next year,” Clark says. The dollar had been rising all year on the prospect of rising rates and the rate differential between the US and most other regions, which had been widening, he says, but now the “dollar is undercut by the fact that maybe we have seen the peak in rates.” The WSJ Dollar Index sinks 1.3%, and the dollar is 1.1% weaker against the euro and 2% weaker against the yen. ([email protected]; @jonvuocolo)

Dollar in Freefall as CPI Shows Slowing Inflation

12:10 ET - The ICE US Dollar Index slumps 1.3% as July CPI data shows inflation decelerating. The index is down by the most since June and earlier was trading at its lowest levels since March 2020. “The dollar is in freefall,” Oanda’s Edward Moya tells WSJ. “Investors are convinced the Fed will have a much slower rate hiking cycle now.” The senior market analyst for the Americas says today’s numbers are “great news for risky assets and will really put an end to expectations that the interest rate differential for the dollar was going to continue to widen in its favor, and now you have a market that is more optimistic about the economy.... The top of the dollar could be in place right now if inflation continues to decelerate sharply.” ([email protected]; @jonvuocolo)

Post-Inflation Moves in Dollar, US Stocks Could Prove Brief

1423 GMT - The dollar’s depreciation and a rally in U.S. stocks after Wednesday’s lower-than-expected U.S. inflation data probably won’t last, Saxo Markets says. “Both these moves may be short lived if the market returns its attention back to the Federal Reserve--one month of data won’t change their current hawkishness as it stands by its mission to force inflation down,” Saxo sales trader Mike Owens says in a note. U.S. inflation eased to an annual rate of 8.5% in July from 9.1% in June while core inflation held at 5.9%. The DXY dollar index drops 1.3% to a near 6-week low of 104.911. EUR/USD rises 1.1% to 1.0331 after earlier hitting a five-week high of 1.0345, according to FactSet. ([email protected])

Dollar Weakens on Inflation Data

0912 ET - The dollar tumbles following lower-than-expected July inflation. The DXY is down 1.3% as the greenback weakens against all major currencies, including 1.5% versus the yen, 1.1% versus the euro and the pound and 1.3% to the Australian dollar. The core CPI measure rises 5.9% in the 12 months through July, the same as recorded in June, while economists expected an acceleration to 6.1%. If further data confirm that inflation has peaked, the Fed could be more inclined to raise rates by 50 basis points next month, instead of another 75bp hike, potentially reducing support for the US dollar. ([email protected]; @ptrevisani)

Swedish Krona May Struggle to Rise Considerably

1014 GMT - Swedish krona may struggle to rise materially in the near term even as the Riksbank raises interest rates, Bank of America says. “The Riksbank has been on SEK’s side this year, but for SEK to strengthen meaningfully from here, we also need a favorable risk sentiment and a weaker USD,” BofA analysts say. “We are not there yet.” However, there is still some scope for the krona to appreciate versus the euro as the Riksbank has a more positive real economic backdrop than the European Central Bank and no fragmentation risks while Sweden’s energy dependency and energy mix are more favorable than those of the eurozone, the analysts say. BofA expects EUR/SEK to fall to 10.00 by year-end from 10.3758 currently. ([email protected])

Norwegian Krone Seen as Undervalued, Expected to Rise

0945 GMT - The Norwegian krone remains undervalued despite its rally in July but looks set to strengthen further as energy prices remain elevated and markets underestimate the Norges Bank’s policy tightening, Bank of America says. “We expect Norges Bank to raise rates to 3% next year--markets price a somewhat lower terminal [peak] rate but a more front-loaded pace,” BofA analysts say in a note. “For these reasons, as well as to hedge further energy disruptions in Europe, we are positioned for lower EUR/NOK with a 6-month horizon.” BofA expects EUR/NOK to fall to 9.70 by year-end and to 9.50 by March 2023, from 9.8957 currently. ([email protected])

Euro Likely to Stay Weak Vs Dollar

0921 GMT - The euro remains weak against the dollar and there doesn’t seem to be a compelling case to buy the currency pair, ING says. Medium-term valuation considerations show EUR/USD isn’t particularly undervalued and Europe is more exposed to geopolitical-event risks than North America, ING analyst Chris Turner says in a note. The absence of notable European economic data Wednesday means EUR/USD will be driven by U.S. inflation data at 1230 GMT, he says. “Declining levels of implied volatility suggest investors may be in no mood to chase EUR/USD out of a 1.0100-1.0300 range near term.” Implied volatility is a measure of expected price swings based on options pricing. EUR/USD rises 0.1% to 1.0221. ([email protected])