US CPI cooled hopes for a 50 bps Fed rate cut

What to watch out for on Thursday, September 12:

Financial markets turned risk-averse after the United States (US) released its August Consumer Price Index (CPI). The US Bureau of Labor Statistics reported that the annual CPI rose 2.5% from a year earlier, down from 2.9%. The annual core figure also matched July’s and print expectations at 3.2%. However, core monthly growth was stronger than anticipated at 0.3%-

Despite the fact that the US CPI numbers were broadly in line with expectations, financial markets rushed to safety as investors all but gave up on an upcoming Federal Reserve (Fed) interest rate cut of 50 basis points basis at the meeting next week. Policymakers are now expected to gradually ease monetary policy, with a 25 full-price monetary point cut.

Stock markets took a sharp turn south, with US indices posting sharp losses following the US data. However, Wall Street reversed course before the close, with only the Dow Jones Industrial Average remaining in the red.

Meanwhile, US Treasury yields hit fresh 52-week lows ahead of US CPI, recovering only modestly thereafter. The 10-year Treasury note is currently yielding 1 bps higher than the 2-year note, suggesting recession fears remain contained.

EUR/USD is around 1.1020, while GBP/USD found buyers around 1.3000 and is now changing hands around 1.3050. Commodity currencies made the most of the rally in equities, with AUD/USD pushing intraday highs in the 0.6670 region and USD/CAD trading at daily lows in the 1.3560 price area.

USD/JPY fell to 140.70 early Wednesday, a new low since 2024. By the end of the day, the pair recovered and is well above the 142.00 mark. The Swiss franc also gave up ahead of the daily close and USD/CHF is hovering around 0.8500.

Gold flirted with the $2,500 mark at the height of risk aversion, later returning to settle around $2,515.

Thursday’s macroeconomic calendar will include expectations for Australian September consumer inflation, previously at 4.5%, the United States’ Producer Price Index (PPI) and the European Central Bank’s (ECB) monetary policy decision. The ECB is expected to cut its three main interest rates by 25 bps each.