US Inflation Unchanged, But Real Earnings Fall
The US inflation number was the data highlight of the week, though as we have seen today, it is anything but economic fundamentals driving trade today as the flight to safety sees a further push into USDs as emerging currencies collapse. Based on the data just released, there is little which changes the picture in the US, with the Fed more than happy to stick to the plan based on these CPI numbers. Indeed, a lack of material push higher from current levels - unchanged at 2.9% - is a welcome result as there were concerns of having to deal with an overshoot.
One notable miss was the real earnings figure, which fell 0.2% in Jul - this may have some implications for spending down the line. The market is ignoring this for now as focus lies elsewhere.
Given there have been some bid levels broken in the key exchange rates, we expect the market to try and continue this narrative, with EUR/USD leading the way as it tries to push further down towards 1.1400. There looks to be some buying interest ahead of this which is coming in around the 1.1430-35 level, but the momentum is with the USD at the moment as and that is clear to see.
USD/JPY is also pushing above 111.00 again and this only highlights the demand for US paper away from the traditional safe havens - of which the JPY is clearly on. Based on their respective current account surpluses, both the EUR and JPY may eventually gain ground, though as we can see - not for now!