Price action muted as focus turns to US inflation report

Key Movers

Price action among major currencies was largely subdued through trade on Wednesday as investors squared positions ahead of today’s all-important US CPI update. The euro, GBP and JPY all tracked within a narrow range, while the USD DXY index was mostly unchanged.  The CAD and Norwegian krone both moved lower as oil prices resumed last week's downward correction, giving up the risk on gains won earlier this week. Fears of a broader downturn in global economic activity have dampened demand for key raw materials and commodities with oil bearing a heavy weight.

Our attention now turns to tonight’s critical US CPI report. Fed speakers have openly highlighted the impact of natural tighter financial conditions and yesterday’s September meeting minutes illustrated the FED’s penchant for a more cautious approach moving forward. Policymakers agreed they should “proceed carefully” when considering future rate decisions. While they expect to leave rates higher for long the need to continue lifting interest rates may have passed. We expect both headline and core inflation will have increased through September but a slowdown in the pace of appreciation should see the annualised rate move back toward the Fed’s target. A softer print removes the need for the Fed to raise rates again this year and could add more downward pressure on US treasuries and the dollar.