US equity markets fell away from historical record highs overnight, as markets look towards the all important inflation data. US PPI came in at 8.6%, which was in-line with expectations, but remains the highest in 11 years. This will feed directly into the CPI number, set to be released tonight, which is expected to surge to 5.8%. Inflation is the only foe to the massive fiscal and monetary expansionism employed by the USA and around the world. The EUR traded 1.1580, following improved, but depressed ZEW Economic Sentiment reports from Germany and the EU. The GBP traded 1.3550, while the Yen showed some strength, rallying to 112.80.
Commodity currencies suffered a bounce in the reserve, with the NZD retracing to 0.7100, while the AUD fell back to around 0.7350. Any major surprise in US inflation could trigger severe market reactions. A spike will pressure the Fed to bring forward ‘tapering of QE’ and even consider rate rises. Interest rates remain calm but look to the US Bond markets for a lead and reaction to tonight’s CPI release.