Major Currency Changes

The US PPI data for August revealed a slight drop. The overall number fell by -0.1%, with the same decrease seen in the readings excluding food and energy. Year-on-year, the headline figure stands at 2.6%, while the reading excluding food and energy is at 2.8%, both below what was expected. In response, the US dollar had mixed reactions. The upcoming US CPI data is crucial before the FOMC rate decision, with expectations of a 0.3% increase in both the headline and core readings. The year-on-year headline CPI is predicted to be 2.9%. Here are the major currency changes against the US dollar: – EUR: +0.09% – JPY: unchanged – GBP: -0.02% – CHF: +0.20% – CAD: +0.13% – AUD: -0.50% – NZD: -0.29% In July, U.S. wholesale sales increased by 1.4%, exceeding the expected 0.2% rise, while inventories grew slightly by 0.1%. US GDP estimates are now at 3.1%, up from 3.0% according to the Atlanta Fed. The U.S. Treasury auctioned $39 billion in 10-year notes, with foreign demand reaching 83.13%, higher than the six-month average of 71.1%. US yield movements led to a flatter yield curve, with the 10-year yield down by -3.0 basis points to 4.043%, close to weekly lows.

Market Sentiment and Strategies

The August producer price data was unexpectedly weak, indicating that inflation may be slowing down faster than anticipated. This puts added pressure on tomorrow’s CPI report to confirm this trend before the Fed’s meeting next week. If the CPI appears low as well, the Federal Reserve may feel more inclined to pause or hint at future rate cuts. With this mixed data, uncertainty is rising ahead of the CPI release and the FOMC decision. Fed funds futures now indicate a roughly 60% chance of a rate cut by the December 2025 meeting—a notable increase from last week. Traders should get ready for a big market reaction to tomorrow’s inflation data. The bond market is clearly expecting rates to fall, as seen by strong demand for 10-year notes. The yield has dropped to 4.043%, suggesting that large investors are locking in current rates before a potential decline. This indicates a strong belief in a more dovish Fed outlook. For those trading derivatives, buying volatility might be a smart move. The CBOE Volatility Index (VIX) is now at 15.8, and options premiums on indices and interest rate futures are likely to increase. Strategies like straddles or strangles could help profit from significant price swings following the CPI data. Despite the Atlanta Fed’s GDP estimate rising, the flattening yield curve signals caution regarding future economic strength. This pattern is reminiscent of the 2023 banking stress when bond markets anticipated a slowdown before it became clear in growth data. Such divergence calls for a defensive strategy in portfolios. In the currency market, there’s evident risk-off sentiment, leading to weakness in the Australian and New Zealand dollars. In contrast, the Swiss franc is strengthening as a safe-haven asset. Options that bet on continued AUD/USD weakness could be appealing if global growth fears persist. Additionally, the recent tragic death of a prominent political figure adds social and political uncertainty. Such events can provoke market jitters and lead to a flight to safety. This reinforces the need to hold protective put options on broad equity indices as a safeguard against unexpected shocks in the coming weeks. Create your live VT Markets account and start trading now.

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