Forex Today: US Dollar stabilizes ahead of next batch of US data

Here is what you need to know on Thursday, August 13:

The action in financial markets remains relatively subdued early Thursday, with major currency pairs fluctuating within their narrow weekly ranges. In the second half of the day, weekly Initial Jobless Claims and Producer Price Index (PPI) data for July will be featured in the US economic calendar.

On Wednesday, the data published by the US Bureau of Labor Statistics showed that annual inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 3.4% in July from 3.5% in June. On a monthly basis, the CPI rose by 0.1% following the 0.4% decline recorded in the previous month. The core CPI, which excludes volatile food and energy prices, increased by 0.2% and 2.5% on a monthly and yearly basis, respectively. All of these figures came in line with analysts' estimates and failed to trigger a noticeable market reaction.

The US Dollar (USD) Index registered small losses on Wednesday before entering a consolidation phase at around 100.00 early Thursday. In the meantime, US stock index futures trade virtually unchanged on the day following the mixed action seen in Wall Street midweek.

US Dollar reaction muted as CPI cools hike odds but leaves structural worries intact

Analysts at Deutsche Bank note that, “for the most part, markets focused on the benign headline of the CPI print,” with the probability of a September Fed hike slipping as a result. They highlight that “pricing of a September Fed hike fell from 48% to 40%, the lowest it has been since the June Fed meeting shifted the market perspective on hikes.” Even so, Deutsche Bank stresses that “our US economists maintain their call for a Fed rate hike in September, though the CPI print together with last Friday’s mixed jobs report reduce the urgency for imminent action.” In their view, “the CPI report eased concerns about the next Fed move without doing much to resolve the longer-term concerns around deficits, supply, and term premium,” leaving underlying structural issues firmly in place despite the softer near-term policy risk.

The UK's Office for National Statistics reported earlier in the day that the Gross Domestic Product (GDP) expanded at an annual rate of 1.2% in the second quarter. This print followed the 0.9% increase recorded in the previous quarter and came in slightly better than the market expectation for an expansion of 1.1%. On a negative note, Industrial Production and Manufacturing Production in the UK contracted by 0.2% and 0.5%, respectively, on a monthly basis in July. GBP/USD edges slightly lower following these mixed data releases and was last seen trading at 1.3485, losing about 0.1% on the day.

Following Monday's upsurge, USD/JPY lost its bullish momentum and closed virtually on Tuesday and Wednesday. The pair extends its sideways grind early Thursday and trades in a tight channel below 159.50.

Gold regained its traction and held slightly above $4,400 at the end of the day on Wednesday. The precious metal corrects lower in the European morning on Thursday and trades at around $4,370.

Crude Oil prices remain flat early Thursday as the uncertainty in the Middle East persists, with the US and Iran offering conflicting claims regarding the activity in the Strait of Hormuz. At the time of press, the barrel of West Texas Intermediate was virtually unchanged on the data $81.50.

Oil gains seen keeping December Fed hike on the table

According to TD Securities, “we continue to see crude oil moving higher,” a trend they argue “should keep the possibility of a December rate hike alive.” The bank notes that “this means that inflation, at least on the headline, will move higher later,” which in turn “could get the market to reprice Fed hikes and gold this year.”