Summary:

• University of Michigan consumer sentiment index rises to 101.1 
• Reading is the highest since 2004
• Inflation expectations fall however; USD remains lower

The final macro release of the week on the US economy has sent mixed messages for the US dollar which remains firmly lower on the day following the earlier disappointment in the CPI reading. 

 The USD remains lower on the day with the disappointing CPI outweighing the Uni Mich beat. Source: xStation

The main consumer sentiment reading rose to 101.1 – the highest level since 2004 – in what is further evidence of heady levels of optimism surrounding the US economy at present. Against a forecast of 95.1, which would have been in line with the prior, the reading is undoubtedly positive, but there hasn’t been a significant USD positive reaction in the markets probably due to the accompanying fall in inflation expectations.

The 1-year inflation expectations dropped from 2.7% previously to 2.3% in what is a fairly large downward revision. Given the earlier below expected CPI reading, this could have a larger impact than usual as there are growing concerns surrounding the Fed continuing along their current hiking path in the absence of a pick up in inflation. 

There has also been Fed speak this afternoon with Evans making the following comments:

• US economy has really quite strong fundamentals
• Wages are growing better than they did but still lagging normal times
• Could be room to grow on employment
• Priority now is for inflation to get back up to Fed’s 2% objective
• Hurricanes will reduce economic growth in Q3 

Overall the tone of these comments are fairly upbeat but note the reference to lower inflation. Today’s data will have done little to change his mind with both inflation releases coming in lower.