FX Daily: US inflation to offer some support to USD today

USD: AI trade bounces back The dollar has given back most of last week’s gains as global equities rebounded and oil prices extended their decline at the start of this week. Despite the 4% drop in Nvidia stock, led by an investigation into CEO Jensen Huang, the Nasdaq and S&P 500 are now less than 2% below their 4 November closing levels. That sends a rather strong signal that last week was a bout of jitters rather than the start of a bigger downturn.

A further improvement in risk sentiment should strip the dollar of the small residual gains from the selloff. But the macro story may incidentally work in the dollar’s favour, leaving risks for the greenback rather balanced, in our view, by the end of the week. We think today’s October core CPI will come in slightly above consensus at 0.3% MoM, offering a bit more support to front-end USD rates, which have also crawled back higher as sentiment has stabilised. We expect headline CPI at 0.3% MoM too, in line with consensus (YoY figures are not published this month due to last year’s government shutdown).

The MoM increase is consistent with the Fed meeting its inflation target of 0.17%. Barring a downward surprise today, it will therefore be hard for FOMC members to sound materially less hawkish simply on the back of the stock market troubles. Today’s long list of speakers includes Chris Waller and Michelle Bowman, considered among the most dovish voices, alongside Lorie Logan and Jeff Schmid, two of the most hawkish members.

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