Tomorrow’s CPI Report Is Anticipated to Reveal a Fractional Decline in Inflation

U.S. CPI preview

It is widely anticipated that tomorrow’s report will show a fractional decline in “headline” inflation (which includes energy and food). The slight downtick is expected to show that inflation vis-à-vis the CPI will come in at 8.7% to 8.8%, a decrease of 0.3% from June’s CPI showing that inflation was at a 41-year high of 9.1%.

Fed rate hike forecasts, according to FedWatch tool

That being said, even if the report comes in around the economists’ forecast it will not greatly affect the actions of the Federal Reserve at the next FOMC meeting which will run from September 20 – 21.

According to the CME’s FedWatch tool, there is a 69.5% probability that the Federal Reserve will initiate its third consecutive 75 basis point rate hike and a 30.5% probability that the Fed will raise rates by 50-point basis points.

The probability that the Fed will enact the third consecutive 75-basis point hike in September has doubled in the last month. On July 8, 2022, the CME’s FedWatch tool was forecasting that there was a 31.4% probability of a ¾% rate hike in September. Just last week on August 2 the FedWatch tool forecasted that there would be a 41% probability.

Gold and US Dollar in the last two trading days

The dollar has declined fractionally over the last two trading days. Today the dollar index is fixed at 106.195 a decline of 0.12%. Gold futures have seen significant gains at the same time but dollar weakness has not been the driving force. Yesterday gold opened at its 50-day moving average of $1790.40 and closed above the key psychological level of $1800 at $1804.40, gaining just under $14 on the day.

As of 4:23 PM EDT gold futures basis, the most active December contract is fixed at $1811.50 after factoring in a $6.30 (0.34%) gain. Dollar weakness over the last two days only played a minimal role in moving gold higher. Rather, it was market participants bidding the precious yellow metal higher that is responsible for the vast majority of gains this week.

The same minimal effect of dollar weakness can be seen in spot gold pricing through the eyes of the KGX (Kitco Gold Index) which has currently marked physical gold at $1794.90 per ounce a gain of $5.70 on the day. As in gold futures, the vast majority of gains were directly attributed to normal trading bidding gold higher by $4.30. An additional $1.40 was added due to dollar weakness.

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Wishing you as always good trading,

Gary S. Wagner