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US Dollar May Rise if Inflation Data Boosts Fed Rate Hike Bets

US Dollar May Rise if Inflation Data Boosts Fed Rate Hike Bets

Ilya Spivak,

Talking Points:

  • Aussie Dollar Gains Alongside China’s Shanghai Composite in Asia Trade
  • US Dollar May Rise After Overnight Dip as CPI Boosts Fed Rate Hike Bets
  • TrackEconomic News Directly on Your Charts with the DailyFX News App

The Australian Dollar outperformed in overnight trade in a move tracking a surge in the Shanghai Composite stock index, pointing to firming risk appetite as the likely catalyst. China’s equity benchmark rebounded after two days of aggressive losses as traders continued to game the probability of a Federal Reserve interest rate hike later this week.

The US Dollar corrected lower after issuing the largest daily gain in 2 weeks yesterday as front-end Treasury yields jumped ahead of the sit-down in an apparent recalibration of market expectations reflecting a real chance that the onset of tightening is indeed at hand. Still, Fed Funds futures are pricing in a mere 28 percent likelihood of a rate hike. Economists are closer to an even split on the issue, with 48 percent of respondents in a Bloomberg survey favoring a 25 bps increase.

Looking ahead, Augusts’ US CPI report takes top billing. The core year-on-year inflation rate is expected to rise to 1.9 percent, the highest in 13 months. A strong outcome may bolster the chance for a rate increase in the minds of investors, boosting the US Dollar but weighing on risk appetite. The sentiment-linked currencies of the so-called “commodity dollar bloc” are likely to suffer most in such a scenario, while the anti-risk Japanese Yen stands to gain. The Euro may emerge as a beneficiary of risk aversion once again, although strength against the greenback seems less likely if Fed rate hike bets are the source of markets’ souring mood. Needless to say, a soft CPI print stands to deliver the opposite dynamic.

UK Jobless Claims figures are likewise on tap, with forecasts calling for another 5k decline. Leading survey data has sent ominous clues about labor conditions in August however, opening the door for a downside surprise. Such a result may weigh on the British Pound as traders scale back imminent BOE interest rate hike bets.


Asia Session

22:45NZDCurrent Account GDP Ratio YTD (2Q)-3.5%-3.7%-3.4%
22:45NZDBoP Current Account Balance (2Q)-1.216B-1.500B0.821B
00:30AUDWestpac Leading Index (MoM) (AUG)-0.3-0.1%
05:00JPYBank of Japan's Monthly Economic Report ---
06:00JPYMachine Tool Orders (YoY) (AUG F)-16.5%--16.5%

European Session

08:30GBPClaimant Count Rate (AUG)2.3%2.3%Medium
08:30GBPJobless Claims Change (AUG)-5.0K-4.9KMedium
08:30GBPAverage Weekly Earnings (3M/Y) (JUL)2.5%2.4%Low
08:30GBPWeekly Earnings ex Bonus (3M/Y) (JUL)2.9%2.8%Low
08:30GBPILO Unemployment Rate 3Mths (JUL)5.6%5.6%Low
08:30GBPEmployment Change (3M/3M) (JUL)18K-63KLow
09:00CHFCredit Suisse ZEW Survey Expectations (SEP)-5.9Low
09:00EUREurozone CPI (MoM) (AUG)0.0%-0.6%Medium
09:00EUREurozone CPI (YoY) (AUG F)0.2%0.2%Medium
09:00EUREurozone CPI Core (YoY) (AUG F)1.0%1.0%Medium
09:00EUREurozone Labour Costs (YoY) (2Q)-2.2%Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.