Dollar shaken as slowing inflation confirmed

After yesterday’s PPI miss, the last thing the Federal Reserve wanted to see today was a miss on CPI as well. Nonetheless, that’s what has been delivered and the dollar’s been marked down as a result. Those outside bets of a rate hike as soon as December this year have been quashed and EUR/USD’s quickly pulling back the nonfarm payrolls-induced losses seen last week.

Autos prices were the main culprit, as it appears vehicles coming off the forecourt were priced more cheaply to make the most of softening demand. CPI’s sensitivity to single factors like auto prices means inflation could snap back in a big way in the coming months – so the dollar’s weakness on the back of this number could be short-lived. Either way, expectations for a September (and even December) rate hike are beginning to recede.

Markets see Trump upping the ante

A lot can happen over a weekend and, while markets are closed, the White House isn’t so we may see some volatility heading into the close as investors look to take off risk over Saturday and Sunday.

For the time being, it appears the spat over the Korean peninsula will remain just that: a spat. Nonetheless, Trump’s tweet that “military solutions are now fully in place, locked and loaded” has sent a few jitters through equities, bonds and the US dollar. A run into haven assets – mainly the Japanese yen and the Swiss franc – alongside a selling off in equity markets has been how traders and speculators have decided to express their concern for now.

The Japanese yen is at an 4 month high versus the US dollar this morning as a result.

Outside of geopolitics, next week’s busy for data

Yesterday, we wrote that the weakening dollar may be having an impact on producer prices; specifically on those who import capital and wholesale goods from overseas. Next week’s import and export price index numbers will shed further light on this issue. Outside of those numbers, the focus is on consumption and real estate: retail sales numbers on Tuesday and housing starts/building permits figures on Wednesday could prompt volatility, with the FOMC minutes release likely being as uninformative as ever.

Have a great day.