Euro to Look Past CPI Data, May Fall on Italian Budget Woes

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TALKING POINTS – EURO, CPI, ITALY, BUDGET, US DOLLAR, PCE, FED

  • Euro to look past CPI data, may fall on Italian budget woes
  • US Dollar might continue recovery on PCE inflation figures
  • Kiwi Dollar unable to capitalize in risk-on trade, Yen down

Eurozone CPI data headlines the economic calendar in European trading hours. The headline on-year inflation rate is expected to tick higher to 2.1 percent in September, revisiting the five-year high set in July. The outcome seems unlikely to offer a meaningful lift to the Euro however considering its limited implications for ECB monetary policy, which seems to be essentially on autopilot at least through year-end.

Finances in Italy may be in focus instead. The coalition government of populist Five Star Movement (M5S) and nationalist League unveiled a budget that set the deficit target at 2.4 percent, topping consensus forecasts. This may continue to widen the yield between Italian and bellwether German bond yields, speaking to rising credit risk in the Eurozone’s number-three economy and hurting the single currency.

US DOLLAR MAY EXTEND GAINS ON PCE DATA

Later in the day, the Fed’s favored PCE price growth gauge enters the spotlight. The core rate excluding volatile food and energy costs is expected to hold on-target at 2 percent for the second consecutive month. An outcome echoing recent improvement in US data outcomes relative to baseline forecasts may offer a further lift to the US Dollar. It has mounted a recovery after this week’s Fed rate decision (as expected).

YEN DOWN, AUSSIE DOLLAR UP IN RISK-ON TRADE

The anti-risk Japanese Yen traded broadly lower while the sentiment-geared Australian and Canadian Dollars rose as sentiment brightened in Asia Pacific trading hours. Regional shares rose in what may be a reflection of corrective quarter-end capital flows as the MSCI APAC equity benchmark heads for the third consecutive three-month loss. That amounts to the worst losing streak in seven years.

NZ DOLLAR LAGS ON RBNZ OUTLOOK

The New Zealand Dollar failed to capitalize on investors’ chipper mood however. It fell alongside local front-end bond yields, hinting at a dovish shift in the prevailing RBNZ monetary policy outlook as the catalyst at work. As it stands, bank bill futures hint central bank officials’ next move will be a rate hike but they do not expect it sooner than at least September 2020.

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ASIA PACIFIC TRADING SESSION

Euro to Look Past CPI Data, May Fall on Italian Budget Woes

EUROPEAN TRADING SESSION

Euro to Look Past CPI Data, May Fall on Italian Budget Woes

** All times listed in GMT. See the full economic calendar here.

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