Gold prices, EUR/USD and the Nasdaq 100 will be highly sensitive to the upcoming U.S. inflation report
The U.S. Bureau of Labor Statistics will release October consumer price index data on Tuesday
Headline CPI is seen rising 0.1% m-o-m and 3.3% y-o-y. Meanwhile, the core gauge is expected to clock in at 0.3% m-o-m and 4.1% y-o-y.
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The U.S. Bureau of Labor Statistics will release consumer price index numbers on Tuesday morning. With the Federal Reserve hypersensitive to incoming information and cognizant of upside inflation risks, the latest CPI report will carry additional weight in the eyes of financial markets. This could mean more volatility for gold prices, EUR/USD, and the Nasdaq 100 in the trading sessions ahead.
In terms of estimates, headline CPI is forecast to have risen 0.1% on a seasonally adjusted basis in October. This should push the annual rate to 3.3% from 3.7% previously. Meanwhile, the core gauge, which excludes food and energy, is seen rising 0.3% in monthly terms, with the 12-month related reading unchanged at 4.1%.
The Fed has embraced a data-centric stance and noted that it will “proceed carefully”. Despite this cautious approach, the institution has not entirely closed the door to additional policy firming, with Chair Powell indicating that officials are not confident that they have achieved a sufficiently restrictive stance to return inflation to 2.0% and that further progress on cooling price pressures is not guaranteed.
Taken together, Powell’s comments suggest that the FOMC is not on a pre-set course and is ready to respond as appropriate to adverse developments that may hinder the fulfillment of its mandates. In this context, any upward deviation of the October CPI figures from consensus expectations could lead policymakers to favor another rate hike at one of their upcoming meetings.
If interest rate expectations shift in a more hawkish direction on account of a hot CPI report, U.S. yields should rise, boosting the U.S. dollar. This, in turn, might exert downward pressure on gold, the Nasdaq 100, and EUR/USD. The opposite is also true; a downside surprise in last month’s inflation data should support precious metals, tech stocks, and the EUR/USD by restraining yields and undermining the higher-for-longer argument.
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