US Inflation Continues to Slide – Bets on QE3 Marginally

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The Consumer Price Index in the US remained unchanged. A rise of 0.2% was expected. The annual level of inflation now stands at 1.4%, from 1.7% last month. The fear of deflation triggered QE2. Chance of QE3 have now risen a bit, but remain slim.

Core CPI rose by 0.1%. A rise of 0.2% was predicted. The Federal Reserve eyes this figure. The annual level is at 2.1% – very close to the 2% target.

Also from the US, the NY Empire State Manufacturing Index dropped to -5.85 in August, much worse than last month’s positive figure of 7.39 and much worse than a marginal slide to 6.5 points that was expected.

EUR/USD dropped during the day to around 1.2280. The pair is now on the rise, at 1.2290. USD/JPY continued the upwards momentum and reached 79 – it is now falling to 78.80.

The justification for QE2 was to avoid deflation – a situation where prices fall, disincentivize consumption, hurt the economy, rinse repeat. Yesterday, producer prices were firmer than expected and so were the retail sales numbers – this lowers the chance of recession and of QE3.

The US will publish TIC flows, industrial production and capacity utilization.

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Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.