Summary:
- US CPI inflation misses forecasts, prolonging a soft streak of inflation readings
- US dollar is under pressure across the board
- EURUSD could deny a correction, looks ready to test highs again
Following a weak PPI release yesterday we got another disappointing inflation figure today – this time a more important CPI. While a miss has not been as large as in case of the PPI, it’s still a miss. The key data set is as follows:
- Headline inflation: 1.7% y/y, consensus 1.8% y/y, previously 1.6%;
- Headline inflation in monthly terms: +0.1% m/m, consensus +0.2%, previously 0%
- Core inflation: 1.7% y/y, consensus 1.7%, previously 1.7%
- Core inflation in monthly terms: +0.1% m/m, consensus +0.2% m/m, previously +0.1% m/m
While a miss in headline inflation could have been expected following a weak PPI yesterday we also see a small miss in the core and that does not bode well for the PCE core indicator that is key for the Federal Reserve. Looking at the latest set of data from the US the picture remains mixed: labour market seems to be very strong but activity data has softened and unfavorable trend in inflation continues. That’s not a mix that would push the Fed towards the next rate increase any time soon.
Soft US CPI inflation does not bode well for the PCE reading next week. Source: Macrobond, XTB Research
Understandably the US dollar has been losing this week’s momentum and is now the weakest G10 currency on the market. While many factors could speak for a larger correction on the EURUSD US inflation data simple does not let this happen. Notice that daily candles for Wednesday and Thursday have long lower shades – signs of demand that could drive the pair towards recent highs.
EURUSD could escape a correction as two bullish candles are followed by a rally today. Source: xStation5