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Dollar Unfazed by Rising Price Pressures in United States

Dollar Unfazed by Rising Price Pressures in United States

2011-09-15 13:15:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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THE TAKEAWAY: U.S. Consumer Price Index Jumps > Price Pressures Rising > USDollar Index Unchanged

A report issued today by the Labor Department showed that the cost of living in the United States rose more than expected in August, on higher energy, food and housing costs. The consumer price index’s rise from 3.6 percent year-over-year to 3.8 percent year-over-year is disconcerting, especially at a time when policymakers are handicapped by low growth. Typically, a higher CPI would beget an interest rate hike in the future, but with growth stagnating and liquidity drying up, there is a necessity for low rates. In light of such facts, the Federal Reserve has announced that interest rates will remain near all-time lows until mid-2013.

U.S. Consumer Price Index (YoY): August 2008 to Present

Dollar_Unfazed_by_Rising_Price_Pressures_in_United_States_body_Picture_4.png, Dollar Unfazed by Rising Price Pressures in United States

Prepared by Christopher Vecchio

The CPI jumped by 0.4 percent on a monthly basis versus a 0.2 percent forecasted gain, according to a Bloomberg News survey. The less-volatile CPI core index, which excludes energy and food costs, gained 0.2 percent for a second consecutive month in August. In the future, with more easing expected, it is likely that inflationary pressures continue to rise, despite Federal Reserve Chairman Ben Bernanke’s assertion that such price pressures remain merely “transitory.”

EUR/USD 1-minute Chart: September 15, 2011

Dollar_Unfazed_by_Rising_Price_Pressures_in_United_States_body_Picture_7.png, Dollar Unfazed by Rising Price Pressures in United States

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Following the release, the EUR/USD pair was relatively unmoved, oscillating in a 20-pip range following the release. The CPI reading in the U.S. typically moves markets, but in recent months, it has not had that affect. With the Federal Reserve giving a clear signal that interest rates will remain low until mid-2013, data has had little influence on interest rate expectations, leaving the U.S. Dollar subject to speculation and a safety trade.

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

Follow Christopher Vecchio on Twitter: @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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