The US CPI hit the US dollar across the board yesterday. The June US CPI report showed a convincing slowdown in inflation yesterday. Inflation data supports the argument that the Federal Reserve (Fed) can start loosening monetary policy this quarter, ING’s FX analyst Francesco Pesole notes.
“The USD took a hit after the CPI release, which was exacerbated by Japanese FX intervention that propped up the Yen (JPY). However, the move gradually faded in the broader FX space. That is, in our view, a symptom of how investors remain reluctant to jump into a broad-based USD decline despite encouraging data.”
“That may be due to the lingering political uncertainty in the eurozone and the perceived higher chances of a Trump re-election. As we pointed out in our monthly FX update, we expect investors to be selective in FX this summer.”
“Today, PPI figures may move the market given a lot of the components feed into the Fed's favourite PCE measure of inflation. University of Michigan surveys are the other highlights of the day. We think another leg lower in the USD is possible given markets' growing conviction on Fed easing, and DXY could retest the June 104.0 lows.”
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