Markets Await CPI; Fate of Gold and Dollar Hangs in the Balance

Financial markets are bracing for the release of the U.S. Consumer Price Index (CPI) for August on Friday (Sept. 11), a potentially pivotal data point ahead of the Federal Reserve's interest rate decision next week. Results that deviate from market expectations could trigger sharp movements in the U.S. dollar, Treasury yields, and gold prices.

On a monthly basis, headline CPI is expected to rise by 0.4%, a significant increase compared to the 0.1% rise in July. Year-on-year, inflation is projected to remain at 3.4%. Meanwhile, Core CPI—which excludes food and energy components—is expected to rise 0.2% month-on-month and slow to 2.4% year-on-year.

Inflationary pressures remain a major focus following a surge in energy prices in recent months, driven by the U.S.-Iran conflict and disruptions to shipping activity in the Strait of Hormuz. Although oil prices remained relatively stable throughout August after surging nearly 22% in July, the risk of rising energy costs has intensified again in September, making the inflation outlook increasingly difficult to predict.

TD Securities anticipates that core inflation pressures remain relatively contained. Core CPI is projected to rise by approximately 0.19% month-on-month, driven primarily by the services sector, while core goods prices are expected to decline slightly. On an annual basis, TD Securities even forecasts Core CPI slowing to 2.3%, while headline inflation remains around 3.4%.

However, there remains a risk of higher-than-expected data, particularly due to energy prices and uncertainty surrounding tariff-affected goods. Following earlier Producer Price Index (PPI) data that reinforced expectations of a Fed rate hike, another "hot" CPI reading could further strengthen the view that the central bank must continue its tightening policy.

Newsmaker Analysis: Market attention will likely center on Core CPI. If headline CPI comes in at 0.4% but Core CPI is only 0.2% or lower, the market may conclude that the inflation spike is largely driven by energy costs, potentially limiting the downward pressure on gold. Conversely, if Core CPI also exceeds forecasts, expectations for Federal Reserve rate hikes, the dollar, and yields could surge, thereby exerting greater pressure on gold. (arl)

Source: Newsmaker.id