Fed policymakers resist cheering softer US inflation, gold retreats from multi-day high

Global markets turn cautiously optimistic over the downbeat US CPI for July as Federal Reserve (Fed) authorities fail to welcome the much-awaited chance in inflation. Also weighing on the market sentiment could be the headlines from China suggesting further tussles between Washington and Beijing over trade and Taiwan.

However, the US dollar remains pressured while tracing the Treasury yields, which in turn helps equity futures and the Asia-Pacific shares to follow Wall Street’s gains.

AUDUSD remains skeptical amid softer Consumer Inflation Expectations but NZDUSD rallies the most among the G10 currency pairs as traders brace for the hawkish RBNZ. Further, USDJPY and EURUSD are benefiting from the US dollar weakness.

Prices of gold, on the other hand, remain softer as doubts over Fed’s next move join China-linked headlines to probe the bullion buyers. The same is the case with oil as it hesitates during the five-day uptrend.

BTCUSD and ETHUSD refresh two-month high as US dollar weakness joins upbeat headlines surrounding Ethereum Merge.

Following are the latest moves of the key assets:

• Brent oil struggles to defend four-day uptrend sidelined near $99.60 by the press time.
• Gold extends the previous day’s pullback from one-month high, down 0.30% intraday near $1,787 at the latest.
• USD Index remains pressured near 105.00, reversing the Asian session rebound, amid market’s cautious optimism.
• FTSE 100, Eurostoxx and DAX all print mild losses as we write.
• Wall Street closed in the green with Nasdaq leading the bulls with 2.89% daily gains.
• BTCUSD and ETHUSD are both on the winning side while refreshing two-month high around $24,500 and $1,880 at the latest.

Fed, China probes US inflation-linked optimism

Traders took a sigh of relief after the US CPI for July dropped below market forecasts and prior readings. However, Fed policymakers’ resistance to accepting the receding inflation fears appears to challenge the optimists. Also keeping the Fed hawks hopeful is the interest rate futures that still show around 50% chance of 75 bps rate hike in September, versus nearly 70% odds favoring the outcome marked previously.

Elsewhere, US President Biden’s indecision over removing Trump-era tariffs from Chinese goods joins Taiwan’s challenge to the One China policy to also weigh on the sentiment. Furthermore, Beijing also rejected a US meat producer’s exports while citing medical issues.

Not only the US CPI for July but Australia’s Consumer Inflation Expectations for August also weakened.

On a different page, the finalization of the Goerli test merge and hopes of a cyclical rebound in the cryptocurrencies propelled BTCUSD and ETHUSD towards the multi-day high.

It should be noted, however, that the mood remains cautiously optimistic ahead of today’s US PPI.

⏫ 🟢 Strong buy: USDJPY

⏬ 🔴 Strong sell: ETHUSD

⬆️ 🟢 Buy: USD Index, USDCAD, Nasdaq

⬇️ 🔴 Sell: DAX, FTSE 100, gold, BTCUSD

Could US PPI renew inflation fears?

Although the CPI managed to offer an intermediate relief from the hawkish Fed expectations, the looming release of the US Producer Price Index (PPI) for August seems to challenge the optimists. The reason could be linked to the Fed policymakers’ cautious remarks, as well as recently softer oil prices that might improve over time.

In addition to the US PPI, weekly jobless claims and Friday’s UoM consumer sentiment data could also keep USD bears on their toes.

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