Fx daily cpi can seal the deal on a fed hike

Key arguments

• Today's US August CPI can seal the deal on a September Fed hike; even a marginal upside surprise, with headline at 0.4% MoM, would be enough to tilt the balance towards tightening despite benign core dynamics at 0.2% MoM.
• The dollar is tentatively re-establishing a positive correlation with long-end yields, aided by modest Treasury buybacks and reluctance to intervene aggressively in the bond market.
• The ECB delivered a hawkish hike with upwardly revised inflation projections and October firmly in play, giving markets the green light to preserve the oil-rates correlation, which reduces but does not eliminate EUR/USD downside.
• Sterling faces a potential cliff-edge dovish repricing as ING's baseline remains no BoE hike against market pricing of 48bp by year-end and 110bp by July, despite a solid GDP print.
• The National Bank of Poland confirmed a dovish stance and an open door to more zloty weakness, with no rate adjustment seen potentially until mid-next year.

Corresponding source evidence

1. This tentative rebuilding of a USD-back-end yield positive correlation bodes well for the greenback’s short-term outlook. · short-term
2. Still, a hawkish ECB means EUR/USD downside risks may be less pronounced Markets are pricing in 18bp for next week's FOMC meeting USD: Not a high bar to cement hike bets Oil prices and global bond yields both surged yesterday. · next week
3. The dollar is tentatively re-establishing a positive correlation with long-end yields, helped by a smaller-than-expected $6bn Treasury buyback announcement, which ultimately translated into an even smaller $5.19bn operation yesterday.