FX Daily: Boring CPI, boring August?
USD: Markets remain hawkish after CPI The dollar had a short-lived negative reaction to the spot-on consensus 0.1% headline and 0.2% core month-on-month CPI print yesterday. The driver was a small dovish repricing in Fed rate expectations, which told us that markets were positioned for a slightly hotter print than consensus. In any case, the ...
The dollar experienced a short-lived decline following a CPI report that met expectations. The Federal Reserve's rate expectations saw a slight reassessment, indicating markets anticipated a slightly more robust CPI print. Nonetheless, the release didn't resolve front-end rates or direct the FX course, allowing the dollar to close higher, possibly due to some net long positions.
Core inflation remains at a 1.6% annualized rate, suggesting a potential cooling of the Fed's tightening narrative. Despite the jobs and CPI reports eroding 5 basis points from September FOMC expectations, a 9 basis point gap still persists. For December, the market anticipates a 25 basis point hike, but the full extent remains embedded in the yield curve.
This implies a reluctance to price in additional Fed tightening, maintaining dollar bullishness. The persistent hawkish sentiment in Fed communication and the impact of strong pre-July data contribute to this outlook. The August Jackson Hole Symposium may still provide significant insights, while the coming week's FOMC minutes could offer additional clarity.
Unless unexpected data emerges, Fed positioning may stabilize and reduce USD volatility. In this context, geopolitical factors, such as Gulf tensions, might regain relevance for currency markets.
Written by urgent.news from Hellenic Shipping News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
