(Original title: Bonda Asia: Strong inflation rises, interest rate hike expectations, the dollar index rose sharply)
Source: Financial World
On Tuesday, local time, US President Biden delivered a speech on the latest inflation situation. Overall, U.S. prices have been largely flat over the past two months, which is good news for American households, Biden said. However, it will take more time and determination to reduce inflation in the United States. Biden is trying to capitalize on a string of positive economic news to turn the Democratic Party’s biggest political burden into a midterm selling point, but an “untimely” inflation report has thwarted his efforts. Biden noted that “progress” has been made in containing price increases, but there is still much work to be done. Biden sidestepped the embarrassing reality of rising inflation month-on-month and instead pointed to some of the positives in the data, such as the sharp drop in gasoline prices in August. The national average price for regular gasoline was $3.72 a gallon on Monday, down 26 percent from a month ago, according to energy data and analytics provider OPIS. Earlier, the latest data released by the US Department of Labor showed that the US consumer price index (CPI) rose 0.1% month-on-month in August and 8.3% year-on-year. The analysis believes that the high year-on-year CPI growth rate has once again strengthened the Fed’s expectation of continued aggressive interest rate hikes.
In addition, after the stronger-than-expected U.S. CPI in August was announced, the outside world has raised expectations that the Federal Reserve will raise interest rates by 100 basis points this month. Nomura became the first major Wall Street bank to expect the Fed to raise interest rates by 100 basis points next week. Diane Swonk, chief economist at KPMG, believes that a 100-basis-point rate hike is definitely on the Fed’s radar. Former US Treasury Secretary and economist Summers commented that the August CPI confirmed the serious inflation problem in the United States. If he were given a choice between raising interest rates by 50 basis points and 100 basis points next week, he would choose 100 basis points to strengthen the Fed’s anti-inflation credibility. Summers said he doesn’t think high inflation can be brought under control without the Fed raising rates closer to 4%, and because of that, he thinks it’s better to raise rates quickly rather than slowly. Core inflation was over 7% this month and is likely to remain elevated given rents. He worries that raising the Fed’s policy rate to around 4 percent won’t be enough to bring inflation back to its target of 2 percent.
The data to be concerned about today are the annual rate of CPI in the UK in August, the annual rate of the retail price index in the UK in August, the annual rate of imported PPI in the UK in August without seasonal adjustment and the annual rate of PPI in the United States in August.
US dollar index
The U.S. dollar index rose sharply yesterday, hitting the 110.00 mark and hitting a 3-day high. The exchange rate is now trading around 109.80. In addition to short covering, which provided some support for the exchange rate, the US CPI data that the market focused on during the period was higher than expected. Data show that the U.S. overall CPI recorded an annual rate of 8.30% in August, 0.2 percentage points higher than expected. Today, we are concerned about the pressure situation near 110.30, and the bottom support is near 109.30.
EUR/USD
The euro fell sharply yesterday, fell below the 1.0000 mark and refreshed the 3-day low. The exchange rate is now trading around 0.9980. In addition to profit-taking, which weighed on the exchange rate to a certain extent, the US dollar index hit the 110.00 mark when strong inflation data raised expectations that the Fed would raise interest rates by 100 points next week, which was the main reason for pressure on the euro to fall. In addition, after the rapid decline of the euro, some long orders were forced to stop losses, which also exacerbated the decline of the exchange rate. Today, we are concerned about the pressure situation near 1.0050, and the bottom support is near 0.9900.
GBP/USD
The pound fell sharply yesterday, fell below the 1.1500 mark and refreshed the 3-day low, and the exchange rate is now trading around 1.1500. In addition to profit-taking, which exerted a certain pressure on the exchange rate, the US dollar index rose sharply after the strong inflation data raised the expectation of a substantial interest rate hike by the Federal Reserve, which was the main reason for the pressure on the pound to fall. In addition, investor concerns that the UK economy will fall into recession later this year also weighed on the exchange rate. Today, we are concerned about the pressure situation near 1.1600, and the bottom support is near 1.1400.