The trade-weighted dollar is moving sideways, equity futures are slightly weaker, and long-term yields are creeping higher ahead of data that is expected to show core consumer price growth continuing to fade in the face of the Federal Reserve’s tightening campaign.

According to consensus expectations, month-over-month headline inflation accelerated to 0.6 percent in August as energy prices climbed, driving the all-items index to a 3.6-percent gain over last year. But core – widely considered a more reliable gauge of underlying inflation – is seen rising just 0.2 percent for a third month running, bringing the year-over-year increase down to 4.3 percent from 4.7 percent in July.

We’re often guilty of overestimating investor intelligence, but we think the core print should take precedence in moving markets around the 8:30 release.

The euro rallied last night after Reuters said the European Central Bank now expects inflation to run above 3 percent next year, raising the likelihood of a rate hike at tomorrow’s meeting. Citing someone with “direct knowledge of the discussion”, Reuters suggested that updated staff projections will show inflation remaining well above the central bank’s target for longer than markets had anticipated, potentially tilting the balance of opinion into an already-fraught decision. The common currency snapped higher, but ran out of steam as some traders prepared for a reprise of 2008 or 2011 – when policymakers hiked into economic downturns and were then forced into painful reversals.

Frankly speaking, we’re not sure tomorrow’s decision matters for the euro. An autumn rate hike has been embedded in the exchange rate for months, suggesting that traders will look elsewhere – perhaps toward today’s US inflation data or next week’s Fed decision – for directional catalysts.

The pound is also trading on a mixed footing, with yesterday’s hotter-than-anticipated private sector wage growth data helping support odds on further tightening from the Bank of England – even as markets see this as potentially exacerbating economic downside risks. Numbers out this morning showed the economy shrinking by more than forecast in June, with output contracting -0.5 percent against a consensus -0.2 percent estimate. Softness was widespread across the construction, manufacturing, and services sectors, raising questions around the economy’s capacity to withstand even higher borrowing costs, and – to us, at least – bolstering the case for a pause at next week’s policy meeting.

More broadly, with central bank policy trajectories reaching their peaks, it is clear that market dynamics are increasingly driven by expected growth differentials – and for now, at least, the US owns the nicest house in a bad neighbourhood.