The US dollar weakened last week as the Japanese yen strengthened, after markets briefly repriced a more hawkish Bank of Japan stance, before the greenback recovered some ground on Friday. The rebound followed solid US August nonfarm payrolls, which revived expectations of a September Fed funds rate increase. Attention is now centred on US August CPI and PPI releases as the next catalysts for the Federal Reserve and near-term USD direction.
Fed Decision Hinges on US CPI Print
A Fed decision on 16 September is framed around Friday’s US August CPI print, following better-than-expected summer PCE and CPI readings and caution that underlying trends may not have improved. Even if a September move is locked in, the backdrop includes tightening elsewhere, with the ECB expected to deliver its second 25bps increase of the year on Thursday. Risks around CPI are described as balanced: the ISM Prices Paid index points to upside pressures, while slower US average hourly earnings growth in August leans disinflationary.
PPI Data and Implications for USD
Thursday’s US August PPI is positioned as a lead-in, with focus on PPI Services less Trade, Transportation, and Warehousing; portfolio management fees may distort the data until the BEA methodology change on 30 September.
