Talking Points:

  • Yen gains while Aussie, NZ Dollars sink as risk aversion extends to Asia
  • US Dollar may be forced to look past CPI data amid geopolitical jitters
  • Are FX markets matching DailyFX forecasts so far in Q3? Find out here

The sentiment-linked Australian and New Zealand Dollars slumped while the perennially anti-risk Japanese Yen and Swiss Franc traded higher as Asian bourses picked up the negative lead emanating from Wall Street. The MSCI Asia Pacific regional benchmark equity index shed over 1 percent amid worries about escalating tension between the US and North Korea.

From here, a quiet offering on the European economic data front puts July’s US CPI report in focus. The headline year-on-year inflation rate is expected to rise for the first time in five months, rising to1.8 percent from 1.6 percent in June. US economic news-flow has been improving relative to consensus forecasts since mid-June, opening the door for another upside surprise.

Taken in isolation, a strong CPI print would go a long way toward making another Fed rate hike in 2017 appear more likely. Needless to say, such an outcome might be expected to bode well for the US Dollar. However, the current sentiment backdrop makes it difficult to argue for any kind of tightening, regardless of what price growth may be doing.

As it stands, S&P 500 futures are trading relatively flat. That need not mean that risk-off momentum has dissipated however, and may amount to little more than a brief respite to consolidate after the US benchmark index issued the largest daily drop in three months yesterday. Indeed, contracts tracking the FTSE 100 are deep into the red, suggesting that the blood-letting will continue when Europe comes online.

Still, it is important to remember that the US and North Korea have engaged in nothing more substantive than volleying hyperbolic rhetoric at each other, at least for now. The US President’s penchant for about-face policy reversals suggests that cooler heads may yet prevail. A headline hinting as much may emerge without notice, meaning the risk of a sudden upsurge in risky assets is not to be treated lightly.

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Asia Session

US Dollar Eyes CPI But Geopolitics May Trump Data Impact

European Session

US Dollar Eyes CPI But Geopolitics May Trump Data Impact

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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