US inflation comes off a little more than expected - USD slips again

Published date: 11/10/2018

Markets have reacted to the lower than expected CPI print in the US, with the USD falling back as a result, though in the current climate we tend not to go very far as buyers are never far away.  Depending on your view of how inflation affects the economy, arguments can be made both ways - good and bad - but in this instance, given that the USD has been rising on the back of higher interest rates and the Fed push to tighten more aggressively than at the start of the year, the numbers take the pressure off the Fed. 

That said, we are seeing little movement in US Treasury yields, and unless we see the bond markets reacting a little more to the data, then expect a tighter response in the currency markets.

Looking at EUR/USD, we saw a spike up towards 1.1600 where we see resistance kicking in, while moves were matched in AUD/USD also as we pushed back to the highs seen in the 0.7120-30 area from yesterday.  In both cases, the market is still looking to sell rallies, but this will change if the rates market decides to act.  

For stocks, this may have a positive impact as less pressure on the Fed to hike will prove supportive.  As a result, USD/JPY is and has been unchanged in the wake of the data released, with USD/CHF losing minor ground and that only on a very temporary basis. 

It is also worth watching some of the other markets such as Gold, with the price here racing up to $1210, and the inverse relationship to the USD may also prompt some to start off-loading some USDs - the market still net long by some way!


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