Investors await US CPI data
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Investors await US CPI data

The dollar defences close to its yearly high versus major peers on Wednesday as markets became more risk-averse ahead of the release of key inflation data amid expectations that the Federal Reserve will taper its stimulus next month, likely followed by an interest rate increase by 2022.

Concerns persist among investors regarding inflation resulting from the energy crunch and COVID-19-induced supply chain disruptions affecting company profit margins and economic recovery.

Nonetheless, some investors are positive about the third-quarter earnings season, which begins this week.

The consumer price index in the US is expected to hold at 5.3% in September, while core price inflation is expected to rise 4.0%. Any number above that is likely to fuel expectations that the Fed will have to increase interest rates before the end of the year.

Markets currently expect a 50-50 chance of the rate hike by July 2021.

Markets await more details about the global energy crisis, causing price volatility with concerns that an icy winter will only worsen the oil deficit.

Energy prices are rising at a rapid pace, so there are signs the Fed may need to move quicker than expected to normalize policy, sending Treasury yields to their highest levels in more than 18 months overnight.

The International Monetary Fund has slightly lowered its forecast for this year and keeps its forecast for 2022 at 4.9%.

After quietly trending lower for the past five weeks, the euro hit a year-to-date low against the US dollar on Tuesday. The economic outlook and monetary policy direction are the two most important factors that drive currency flows, and in the case of the euro, both are pointing to further weakness.

Events of today

The US Bureau of Labour Statistics will publish the September Consumer Price Index (CPI) at 15:30 EEST.

Investors also closely watch the FOMC meeting minutes, which is set to release at 21:00. API weekly crude oil stock will come out at 23:30.