U.S. Inflation Data, Middle East Conflict Could Trigger More Dollar Volatility — Market Talk

0751 GMT - The dollar faces more volatility due to U.S. inflation data at 1230 GMT and the ongoing Middle East conflict, Commerzbank's Antje Praefcke says in a note. Should the datacome in lower than anticipated, the market could trim expectations for interest-rate rises which could weaken the dollar, she says. In the less-likely scenario of higher-than-expected data, the market could raise its rate-rise bets, lifting the dollar, she says. To complicate matters further, the Iran war remains a source of uncertainty and a key dollar driver. An escalation in the war would support the dollar while an agreement to end the conflict would weaken the dollar, she says. The DXY dollar index trades steady at 99.858.([email protected])0729 GMT - Yields on U.K. government bonds advance ahead of the release of the U.S. inflation data due at 1230 GMT. A Weaker CPI reading could increase the prospects of the U.S. Federal Reserve keeping interest rates on hold in September and cause Treasury yields to drop, Mizuho's Evelyne Gomez-Liechti says in a note. Nonetheless, over the medium-term Treasury yields could move higher as the Fed is expected to raise interest rates by year-end, Gomez-Liechti says. High oil prices are also causing gilt yields to rise due to concerns about inflation. Ten-year gilt yields climb 1.6 basis points to last trade at 4.969%, Tradeweb data show. ([email protected])0713 GMT - The euro's scope to rise against the dollar looks limited even if U.S. inflation data at 1230 GMT are lower than expected, ING's Chris Turner says in a note. If the data are soft, the euro could challenge last week's high at $1.1580, he says. However, much more of a move "may be too much to ask in quiet summer markets, given we will also see another round of inflation and jobs data--plus the Jackson Hole Federal Reserve symposium--before the Fed decides on policy mid-September." Moreover, Middle East tensions remain unresolved which is keeping European natural gas prices elevated, he says. The euro trades steady at $1.1535. ([email protected])0654 GMT - Yields on eurozone government bonds rise as investors exercise caution ahead of U.S. CPI inflation data due to be released at 1230 GMT. The data could provide clues on whether or not the U.S. Federal Reserve "might bring forward an interest-rate hike as soon as [September]", IG analysts say in a note. Markets are pricing a 52.5% chance of a September rate increase by the Fed, LSEG data show. Ten-year Bund yields rise 1.1 basis points to last trade at 3.159%, Tradeweb data show. Ten-year French government bond yields climb 1.2bps to 3.978%. ([email protected])0651 GMT - Bitcoin edges lower as investors exercise caution due to ongoing uncertainty over the Middle East conflict and ahead of U.S. inflation data at 1230 GMT. Iran said the Strait of Hormuz would remain closed unless the U.S. meets its conditions while the U.S. military said its forces fired on a Panama-flagged ship that attempted to run the American blockade of Iranian ports early Tuesday. The inflation data will be key for interest-rate expectations ahead of the Federal Reserve's September meeting, where markets are pricing roughly 50-50 odds of a 25 basis-point rate increase, according to LSEG. Bitcoin falls 0.2% to $63,599, LSEG data show. ([email protected])0643 GMT - Treasury yields and the dollar trade steady as investors await U.S. inflation data at 1230 GMT for clues on whether the Federal Reserve could raise interest rates. The data are expected to show annual inflation eased to 3.4% in July from 3.5% in June, according to a WSJ survey of economists. Given pricing for the Fed's September meeting is in balance between a rate rise and no increase, the data may help reduce the uncertainty, Danske Bank's Jens Naervig Pedersen says in a note. LSEG data show the market prices a 53% chance of a 25 basis-point rate rise in September. The DXY dollar index trades at 99.873. The 10-year Treasury yield is at 4.682%, below Tuesday's 11-day high of 4.735%, according to Tradeweb. ([email protected])0546 GMT - Market expectations for a 25 basis point interest rate hike by the Bank of Japan at its September meeting have risen sharply following the latest round of yen-buying intervention by Japan and U.S. authorities, says Carol Kong, currency strategist at CBA. There is speculation that U.S. participation in the intervention was accompanied by an expectation that BOJ policy normalisation would follow, she adds. The risk of the BoJ raising rates earlier than CBA's current forecast for December has increased, she says. With a September hike now about 80% priced, keeping the policy rate on hold will disappoint market expectations and fuel a renewed yen weakness, Kong says. ([email protected]; X @JamesGlynnWSJ)0455 GMT - The Reserve Bank of Australia pretty much covered all the policy bases this week with an on-hold interest rates decision mixed with dovish forecasts for lower inflation. To make sure there was something for everybody, there were also explicit warnings during the press conference that a further rate increase remains quite possible. The hawkish press conference held by Gov. Michele Bullock may reflect the central bank's worry that inflation has remained too high for too long, and another failure in getting it back to target will do the RBA significant reputational damage. Bullock really won't chance that. ([email protected]; Twitter @JamesGlynnWSJ)0410 GMT - Australia's residential property sector continues to reel from the recent one-two punch of higher interest rates and tax changes that make property investment less attractive. The Commonwealth Bank says home loan applications are about 15% lower in May than the same month a year ago, while applications by property investors were down by 28% since May. The comments come after Westpac said Monday it had seen a 20% fall in loan applications since May. Already banks are forecasting house prices to fall by more than 10% in the next year, and estimate that might prove conservative in the end. ([email protected];@JamesGlynnWSJ)0402 GMT - The Reserve Bank of Australia's revised forecasts suggest a relatively high hurdle for the central bank to resume tightening, BofA economists say in a note. The RBA held rates steady Tuesday at 4.35%, with its statement and press conference seen to have struck a hawkish tone. The central bank expects the economy's mean inflation to ease to 3.3% in 4Q before falling within its target band of 2%-3% by 2H 2027, they note. Estimates for GDP growth were revised slightly higher but should remain below potential over the forecast period and close the output gap, BofA adds. "The forecasts are conditioned on a cash rate 10 bp higher than the current rate, effectively implying policy on hold." BofA retains its call for an extended hold by the RBA, and sees a modest risk of another hike in November on a hotter-than-expected 3Q CPI reading. ([email protected])0358 GMT - Indonesia's 2027 State Budget is expected to retain a consumption-led bias while targeting a fiscal deficit of 2.2% of GDP, with the budget to be tabled Aug. 14, CIMB analysts say in a note. They expect the fiscal deficit to reach 2.85% of GDP this year. Government expenditure growth is expected to slow sharply to 1.6% in 2027 from 13.9% in 2026, reflecting cuts to some priority programs, they say. Higher tax revenue is expected to come mainly from improved collection and enforcement rather than major new taxes. Government bond supply could rise to 1,750 trillion rupiah in 2027 from 1,726 trillion rupiah this year as more debt matures, but regular bond auctions could fall as some maturing debt is refinanced through bond exchanges and retail rollovers, they add. ([email protected])0324 GMT - India's consumer inflation likely picked up to 4.5% on year in July from 4.4% in June, according to the median estimate of 10 economists polled by The Wall Street Journal. That would mark the highest reading this year and since the government revamped the consumer price index data series in January. A temporary easing in Middle East tensions allowed LPG prices to come down, but vegetable prices continue to rise, HSBC economists say in a note. High-frequency food prices track sequentially higher across categories, implying a slight increase in food inflation, while core inflation was likely driven by petrol, diesel, and precious metals, Goldman Sachs says. The data is due Wednesday. ([email protected])