Headline US inflation dips, but core rate strong
This afternoon's release of US inflation is a mixed bag again, where the headline annualised rate is a tenth below expectations at 1.7%, though August came in at 0.1% as forecast. Against this, however, core inflation is a little higher than expectations, with August seeing a stronger rise of 0.3% vs 0.2% expected, feeding into a higher year on year rate of 2.4% - up from 2.2% and a tenth higher than forecasts. This should cancel out any reaction, though with the numbers so close to estimates, we did not expect a major response anyway.
The Fed has been claiming sluggish inflation as a reason for cutting rates further still, though, at this stage, anything beyond 25bps would be seen as excessive based on the other data seen in the US.
On that front, the weekly claims data shows another better than expected figure at 204k vs 215k expected, with continuing claims at 1670k vs 1690k expected.
Earlier, the ECB cut rates by 10bps and with the EUR heading lower on the news of fresh QE, Presiden Trump wasted no time in getting on his twitter account to fire more criticism at the Federal Reserve for not doing enough to help the USD redress some of its strength. He has again linked the policy action to the impact on exchange rates, bemoaning his own central bank for delaying actions which are indirectly hurting US exporters.
EUR/USD is still trying to push lower, and there is clear intent on retesting the lows seen at the start of last week when we hit lows around 1.0926 or so. This was in thin markets (was a US holiday), but there is a clear driver to feed off as the ECB resume accommodative policy measures including fresh asset purchases (along with a tiering system for negative rates).
USD/JPY is also lower, however, so this is largely EUR weakness we are seeing here, with volumes clearly going through EUR/JPY which is now down 0.8% on the day (now 150 ticks from top to bottom).