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© Shutterstock Cooling inflation unlikely to stop dollar from strengthening
Invezz.com – Much of the focus this week was on US inflation data. In fact, markets moved more when the US CPI and PPI data were released on Wednesday, respectively. , Thursday.
Rising inflation forced the Federal Reserve to embark on a tightening cycle. At the same time, it reduces your balance sheet in a process known as quantitative tightening (ie the opposite of quantitative easing).
So this week’s data, which refers to the change in the prices of goods and services in March, was closely watched by market participants. What will the Fed do after the March print?
It turns out that inflation is cooling. However, despite the disinflationary process in full swing, the next leg of the US dollar should be even higher. In other words, the Fed is still on track to offer another hike at its next meeting.
Core inflation remains stubbornly high
The Consumer Price Index (CPI) for March decreased to 5.0% YoY. Good news for those hoping for inflation to cool.
But the Fed’s favorite inflation measure excludes food and energy prices. It means that the basic CPI is considered more adequate. It came out at 0.4%, insufficient for the Fed to announce the scope of the terminal rate in this cycle.
But the Fed’s favorite inflation measure excludes food and energy prices. It means that the basic CPI is considered more adequate. It came out at 0.4%, insufficient for the Fed to announce the scope of the terminal rate in this cycle.
However, the dollar fell on the news, as reflected by the exchange rate moving above 1.10. Also, the dollar took another beating when the PPI or wholesale inflation data was released a day later.
On this occasion, the disinflationary process was more evident, since the PPI or Producer Price Index fell by 0.5%, while the market did not expect changes.
In short, the dollar traded bearish all week as incoming data seemed to support further weakness. But the core CPI reading for March gives contrarian traders hope that the next leg of the dollar will be more high than low.
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This article was originally published by Invezz.com
