Summary:
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US CPI Y/Y: 2.3% vs 2.4% exp
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Core reading also comes in below forecast (Y/Y: +2.2% vs 2.3% exp)
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USD trading lower on the day; EURUSD near 1.16
Yesterday saw the US dollar come back under some pressure with a sizable day of declines as stocks fell heavily. Today there’s more weakness seen in the buck with the USD trading lower against most of its peers. The largest gains can be seen in the Swedish Krone and The Turkish Lira, while the South African Rand is also higher by more than 1% on the day against the buck.
The USD is losing ground today and only higher against a few currencies. The biggest gainers are the SEK, TRY and ZAR. Source: xStation
The large drops seen in the stock market prompted some interesting comments from Trump, with the President claiming that the Fed were crazy to be hiking rates. This news could well have an impact on the US dollar going forward, as if Trump starts to put pressure on the Fed to not raise rates then it may weigh on the greenback.
With a tight labour market and well performing economy, the backdrop for the Fed does seem to be in keeping with gradual rate rises as we’ve seen in recent years. The main cause of the continuing hikes has been the rise in inflation and as such today’s CPI figure was keenly anticipated. The release itself showed a year on year increase of 2.3% which was below the 2.4% expected. This print also marked a fair size drop from the 2.7% seen previously. The core reading also came in lower than forecast, with a 2.2% print below the 2.3% expected.
Both CPI and the core reading fell lower in the past month, with the inflation metrics pulling back from their recent multi year highs. Source: XTB Macrobond
Should inflation drift lower in the coming months then it would afford the Fed a little more wiggle room as far as hikes are concerned and with odds on a December increase at around 75% at present, there is some scope for disappointment if the Fed stand pat - and this could weigh on the US dollar.
The EURUSD has enjoyed a steady recovery in recent trade with the pair moving up to its highest level in a week in the past couple of hours. The rally saw price almost reach the 1.16 handle, but an inverted hammer on H1 has shown some selling pressure around this prior resistance.
EURUSD rallied higher after the CPI miss, but the market has since fallen back after sellers defended the level around the 1.16 handle. Source: xStation
