Today’s Market Outlook Will There Be a September U.S. Rate Hike? Focus on Today’s U.S. PPI

Today’s Market Outlook
Will There Be a September U.S. Rate Hike? Focus on Today’s U.S. PPI

■ Market Summary

The main theme this week is whether the Federal Reserve will raise interest rates at the September FOMC meeting.

Yesterday’s U.S. CPI came in line with market expectations, confirming a moderation in inflation. Following the release, CME FedWatch showed a 34% probability of a September rate hike and a 66% probability of no change. Rate-hike expectations have declined from around 45% before the CPI release.

However, the possibility of a rate hike remains at roughly one-third. Today’s U.S. PPI, tomorrow’s U.S. retail sales data, and the Jackson Hole symposium from 27 to 29 August are likely to gradually clarify the outlook for the September FOMC meeting.

■ Key Points for U.S. PPI

Market expectations:

● Headline PPI year-on-year: +4.9%
● Core PPI year-on-year: +4.1%
● Headline PPI month-on-month: +0.2%
● Core PPI month-on-month: +0.3%

Year-on-year figures are expected to show moderating inflation, while month-on-month figures are expected to accelerate. If both the annual and monthly figures deviate significantly from expectations in the same direction, the reaction in U.S. yields and the dollar could be amplified.

A strong PPI report could revive expectations for a September rate hike, pushing U.S. yields and the dollar higher. USD/JPY may then test the upper 159 range and potentially move toward 160.00.

A weak PPI report could reinforce the inflation slowdown seen in the CPI data and strengthen expectations for the Fed to keep rates unchanged. USD/JPY could then fall below 159.00 and move toward the 158 range.

■ Foreign Exchange Market

USD/JPY remains supported around 159.40. Although the pair fell into the 155 range after last week’s coordinated intervention, it has recovered a significant portion of that decline.

However, intervention concerns are likely to intensify quickly as the pair approaches 160.00. Even if strong PPI data push USD/JPY into the upper 159 range, the key question will be how far the market can extend gains beyond 160.00.

EUR/USD is trading around 1.1525 with limited directional momentum. Strong PPI data could push the pair below 1.1500, while weak data could support a move toward the upper 1.15 range.

Sterling is slightly weaker despite stronger-than-expected UK GDP data. Some market participants view the GDP strength as being influenced by temporary factors, including favorable weather, the temporary Middle East ceasefire, and World Cup-related demand. As a result, sterling buying has not continued.

■ Today’s Key Events

● U.S. PPI
● U.S. Initial Jobless Claims
● Remarks by Cleveland Fed President Hammack
● Remarks by Richmond Fed President Barkin
● U.S. 30-year Treasury auction
● U.S. corporate earnings, including Applied Materials

Initial jobless claims are expected at 202,000. If claims rise significantly above expectations following the recent weak U.S. employment report, this could further reduce rate-hike expectations.

■ Summary

Following the U.S. CPI report, the probability of a September rate hike has fallen to 34%, while expectations for the Fed to keep rates unchanged have become dominant. However, the policy outlook is not yet settled, making today’s PPI report the main focus.

A strong PPI report could push USD/JPY toward 160.00, although intervention concerns may limit upside momentum. A weak PPI report could strengthen expectations for the Fed to hold rates steady and increase the risk of USD/JPY falling below 159.00.