Resurgent US Dollar Faces Crucial Inflation Test.
The US Dollar is setting a strong tone for the markets this week, propelled by a surprisingly robust employment report last Friday. The data has prompted a significant repricing of the Federal Reserve's policy path, challenging the narrative of a cooling US economy and shifting the focus to this week's critical inflation data.
The Pound Sterling is navigating the effects of the US Dollar's broad-based strength. While the global narrative is dominated by the Fed, the domestic focus for the UK turns to Friday's monthly GDP figures. This release will provide a key reading on the UK's economic health and its resilience against a shifting global backdrop.
Investor focus now turns to whether the US Dollar's recent momentum can be sustained, with two key releases providing insight. Wednesday's minutes from the Fed's September meeting will offer detail on their recent policy thinking, while Thursday’s CPI report will provide the ultimate test of underlying inflation.
The Euro is facing headwinds from the stronger US Dollar, as the policy divergence between the Federal Reserve and the ECB becomes more pronounced. With a light economic calendar in the Eurozone, the single currency remains sensitive to the direction of the US market and the impact of this week's key American data releases.
Events to Watch This Week:
⦁ Wednesday, October 8: US Federal Reserve (FOMC) Meeting Minutes
⦁ Thursday, October 9: US CPI Inflation Report
⦁ Friday, October 10: UK Monthly GDP
The narrative of US economic exceptionalism has been reinvigorated by last week’s pivotal jobs report. Whether this theme continues to dominate will depend entirely on this week's US inflation data. The outcome will be critical in shaping the market's view on the Fed's next move and the US Dollar's path forward.
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