Monetary Policy Vs Foreign Policy
Watchers of the US Dollar may be nursing a little whiplash after yesterday’s afternoon session. CPI despite not being the Fed’s preferred measure of inflation commanded significant attention. Headline inflation month on month rose 0.5% versus a forecast of 0.3%. Core CPI came in closer to forecast once the positive contributions of food and energy were stripped out, recording at 0.4% versus 0.3%. Yields have remained contained in recent sessions despite the threat of inflationary tariff policies.
The Dollar was not so collected in the face of these statistics demonstrating a surge in inflation. Rate cutting expectations were curtailed providing support to the Dollar. The gap higher in the Dollar following the data publication at 13:30 GMT was ultimately short lived. Headlines that Presidents Trump and Putin had agreed to open dialogue regarding Ukraine allowed the Dollar to erase its earlier gains.
President Trump suggests negotiations are due to start immediately creating a risk on attitude in markets. At face value such dynamics will prove to be USD negative. Given the threat to global and US inflation from this conflict, the news also limited the impact of the inflationary reading provided just hours earlier. The second day of Powell’s testimony was also taking place in Congress. In response to the latest inflation read the Chair reiterated the Fed’s view that inflation is still on the way down but it is not quite under control yet.
Discussion and Analysis by Charles Porter
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