Markets React to Inflation Data and GDP Reports

Global markets witnessed an upward drift as US Consumer Price Index (CPI) figures met expectations, reinforcing the Federal Reserve's stance. Gold experienced a dip amid expectations of further Fed actions to combat inflation, while the UK economy grappled with stalling GDP growth. Amidst Japan's holiday, the USD/JPY marked a winning streak, while Australia's inflation outlook impacted the AUD. Economists anticipated the Reserve Bank of New Zealand (RBNZ) to maintain rates unchanged. Here's a roundup of today's market dynamics.

Key Factors for Today

• US CPI aligns with projections, validating Fed's outlook.
• Gold's descent attributed to anticipation of increased Fed intervention.
• UK GDP falters, weakening the Pound prior to data release.
• Japan's holiday impacts USD/JPY, BOJ's role in question.
• RBA's inflation outlook affects AUD near crucial level.
• Majority of economists foresee unchanged rates by RBNZ.

Market Movers

• Gold sees initial rise to $1930/oz, then retreats to $1900/oz.
• Pound weakens, cable retreats by over 1% to $1.2676.
• USD/JPY maintains 4-day winning streak, BOJ's absence noted.
• Aussie drops to $0.6515, stalls above 66 cents.
• Kiwi faces reversal, slips below 61 cents.

Economic Calendar

• UK GDP Growth
• UK Manufacturing Production
• UK Industrial Production
• US Producer Price Index (PPI)
• Michigan Consumer Sentiment
• Spain Consumer Confidence

The Big News

Inflation Data: US CPI Holds Steady Despite Base Effects

In the realm of inflation, the US CPI data held steady, reporting an annual increase of 3.2%, just shy of the expected 3.3%. Despite this, the figure marked the first uptick in 14 months, attributed largely to base effects. Monthly CPI mirrored expectations at 0.2%, while core inflation maintained parity at both 0.2% monthly and 4.7% annually. Market sentiment remained largely unchanged, with the consensus suggesting a pause in the Fed's trajectory at the next meeting. However, the resolve to combat inflation persisted, impacting yields and inducing a decline in gold prices. After reaching a high of $1930/oz, the precious metal reversed course, settling at $1900/oz.

UK's Growth Struggle: Stalling Economy and Weakening Pound

Across the Atlantic, the UK economy encountered headwinds, predicted to stall in the second quarter. Strikes and an extra bank holiday weighed on growth prospects, with Q2 GDP figures expected to reveal 0.0% expansion, diverging from earlier estimates of 0.1%. Cable, despite briefly ascending to $1.2820, underwent a reversal of more than 1%, concluding the day at $1.2676. The downward trajectory could persist, finding potential support above $1.26.

USD/JPY Rally Amidst Japan's Holiday and BOJ's Absence

Japan's observance of a public holiday prompted a notable USD/JPY rally, achieving its lowest yen performance since June's close. As USD/JPY approached the 145.00 mark, the Bank of Japan's inaction was anticipated, given the absence of offers to purchase Japanese government bonds. While 146.00 emerges as a key resistance level for bullish advancement, a reversal might cast the spotlight on 144.00.

Australian Dollar Reacts to RBA's Inflation Outlook

Australia's economic narrative centered on the Reserve Bank of Australia's (RBA) view on inflation. Departing Governor Philip Lowe and incoming Governor Michele Bullock reiterated expectations for inflation to subside to 3.25% by year-end, suggesting the potential need for higher interest rates. However, the unchanged RBA stance led to the Australian dollar drifting downwards. A failed attempt to breach 66 cents resulted in a drop to $0.6515, fueling speculation of a possible slide towards $0.6450.

RBNZ's Holding Pattern: New Zealand Dollar Faces Reversal

Meanwhile, across the Tasman Sea, the Reserve Bank of New Zealand (RBNZ) remained in focus. The latest economist survey indicated a consensus for unchanged Official Cash Rates until the end of Q1 next year, with only a slim minority projecting a rate hike in the final quarter of this year. Similar to its peers, the New Zealand dollar experienced a reversal, descending below 61 cents, with a notable plunge to $0.60 early on Friday.