US Inflation Springs No Suprises
US inflation comes in as expected with the core rate rising a tenth to 2.2% while the headline rate is largely as forecast at 2.8%. This does little to alter the outlook on the FOMC tomorrow night when the Fed is expected to raise rates by 25bps. However, the risk is down to the statement and whether the Fed choose to firm up their tightening intentions, which looks unlikely at this stage.
On inflation alone, there is a clear tolerance for an overshoot. With energy prices coming off better levels and the USD stronger, coming months could see levels moderate. There was some pre-data buying of USD's to note, so not too much of a response post-release, however ahead of tomorrow's key meeting, we expect the greenback to stay bid.
USD/JPY has tested into the mid 110.00's again, with plenty of resistance here. The US 10yr Note is 1bp higher after the data, although as we noted earlier, a push above 3.0% is unlikely for now and this should contain the JPY rate in the meantime....