- A set of mixed data barely changed the outlook for Fed rate cuts.
- The CPI increased by 0.3% in September, with the annual rate increasing by 2.4%.
- Canada’s employment data revealed a robust picture with job growth surging and the unemployment rate dropping.
Currency futures ended nearly flat on Friday as the dollar paused after a set of mixed data barely changed the outlook for Fed rate cuts. Although consumer inflation jumped, producer prices missed forecasts.
The dollar ralied last week before pausing on Friday. The rally came after consumer inflation figures beat forecasts. The CPI increased by 0.3% in September, with the annual rate increasing by 2.4%. Both numbers were above estimates, showing a spike in price pressures.
However, Fed policymakers are less concerned about inflation at this point in the journey. So far, the progress in lowering price pressures has been great. Therefore, policymakers are more confident that inflation will reach the target. As a result, there is more focus on growth and keeping demand at healthy levels. Any signs of deterioration would force the Fed to act swiftly and with a significant rate cut like the one in September.
However, after the September meeting, the US released a blockbuster jobs report that dashed hopes for another such rate cut. Meanwhile, the inflation report barely shifted rate cut bets.
US wholesale inflation (Source: Bureau of Labor Statistics)
Furthermore, data on Friday showed that US producer prices fell more than expected, indicating lower future consumer prices. The PPI was unchanged in September compared to expectations of a 0.1% increase. As a result, market participants bumped up the likelihood of a 25-bps rate cut to 91%. Nevertheless, they were still pricing a small chance of a pause.
Meanwhile, the pound rebounded slightly after UK data showed economic expansion of 0.2% in August. The growth followed a period of stagnation and was a welcome surprise. A rebound in the economy lowers the likelihood of Bank of England rate cuts. However, markets had already priced it in as it came in line with estimates.
Elsewhere, Canada’s labor data revealed a robust picture with job growth surging and the unemployment rate dropping. The economy added 46,700 jobs compared to estimates of 29,800. Meanwhile, the unemployment rate dropped from 6.7% to 6.5%, indicating rising demand for labor. The figures lowered the likelihood of a Bank of Canada rate cut, which briefly supported the loonie.
