Year over, the numbers are as expected: 1.8% in core CPI and +0.2% in headline CPI. However, month over month Core inflation is up only 0.1% and so is the headline number. This is a tad below predictions.
The initial reaction is a lower dollar, but the move is not strong.
- EUR/USD went up from 1.1040 to 1.1070 but is falling down to 1.1030.
- GBP/USD is now slipping to 1.5665, moving away from the 1.57 level.
- USD/JPY stands at 124.30
- USD/CAD is up to 1.3067
- AUD/USD slips below 0.7350
- NZD/USD stands at 0.6577
Quick analysis
This basically leaves the situation as is: inflation is stable but not warming up nor picking up. So, will the Fed make a move based on improving employment, anticipating inflation to eventually pick up? Or will they wait a bit more?
We already heard from Bullard that he will argue for a rate hike, but he leans to the hawkish side. So does Lockhart. But others such as Dudley are a bit on the sidelines, and the Fed certainly consists of doves as well.
We will get some answers in the minutes, later today.
Background
The US was expected to report a monthly rise of 0.2% in headline CPI in July, following 0.3% in June. Year over year, a gain of 0.2% was predicted. More importantly for the Fed, Core CPI also carried expectations for +0.2%. This is the key for the initial movement, as noted in our preview: trading the Core CPI with EUR/USD. Y/y core CPI was predicted to remain at a level of 1.8%.
The US dollar was marginally stronger towards the release.
We will later hear from the Federal Reserve, via the FOMC Meeting Minutes. Within the central bank’s two mandates, there is a clear divide between the improving employment situation and inflation, which is quite stuck.
Some signs of rising inflation may be needed for the Fed to raise rates in September.
More: EUR/USD: What Would It Take To Break The Range? – SocGen
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