US inflation slips to 1.7% and core inflation to 1.7% as well. Month over month, headline inflation drops by 0.2% and core inflation stalls for the first time since 2010. This is worse than expected. It seems as if the stronger dollar already curbs inflation in the US. Only the current account surprises to the upside with a deficit of only $98.5 billion.
The US dollar doesn’t like it: EUR/USD is now at 1.2970, GBP/USD at 1.6330 and USD/JPY slips from the highs to 107.20. Update: the moves are now extending. Could this affect the Fed? Probably not, but it probably strengthens the dovish camp.
The US consumer price index was expected to remain unchanged month over month in August, while core inflation was predicted to rise by 0.2%. Year over year, both indices carried predictions for a rise of 1.9%. The US current account deficit was expected to widen to $114 billion in Q2. The outcome is $98.5 billion and Q1’s figure was revised up to -102.1 billion.
Towards the publication, EUR/USD traded around 1.2955, GBP/USD ~ 1.6320 and USD/JPY at 107.30.
The Federal Reserve has two mandates: price stability and full employment. Prices are very stable lately, to say the least. The Fed prefers core inflation over the more volatile headline CPI and specifically looks into the Core PCE Price Index.
The central bank convenes today to make its decision. A 7th taper is widely expected, while some predict a change in the statement regarding the timing of a rate hike. However, the Fed usually leans to the dovish side.
For more, here is the quick preview: Considerable chance of dollar slide