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US Dollar Shrugs Off Decline in Preferred Fed Inflation Figure

US Dollar Shrugs Off Decline in Preferred Fed Inflation Figure

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Talking Points

  • US Dollar little changed after Fed’s preferred inflation measure was released
  • Core personal consumption expenditure rose 1.6% y/y in March versus 1.7% in Feb
  • The Fed stated inflation could remain low which promotes dovish restraint at this week’s FOMC

Having trouble trading the US Dollar? This may be why.

The Dow Jones FXCM US Dollar Index showed a limited reaction to the release of the US core personal consumption expenditures data. The Fed’s preferred measure of core inflation rose 1.6 percent (YoY) in March, in-line with economists’ expectations. That said, this did temper the previous month’s pace when prices grew 1.7 percent (YoY) in February. This pace check would pull the indicator back from its fastest clip of growth since December 2012 and in turn ease pressure in the Fed to pursue a tightening regime.

The so-called headline figure – including volatile items like energy and food – showed a modest 0.1 percent month-over-month (MoM) increase in price pressures. It’s annual pace eased from a 1.0 percent gain to 0.8 percent. From its February low of $26.05, crude oil prices rose 47 percent through the end of April, and the commodity furthered rose more than 75 percent from that February low to its closing price this Friday. If this buoyancy proves durable, the transitory low-inflation environment that Fed members have reflected on over consistently in policy statements may contribute to the monetary policy conversation.

With the Fed’s dual mandate focused on employment growth and a stable 2 percent inflation target, today’s release showed that prices – at least at the moment – are heading in the wrong direction. The central bank did announce at its most recent monetary policy announcement that inflation should remain low in the near term, but the committee went on to suggest that prices should rise to its target over the medium term. However, after the neutral stance of the Fed at its April 27 policy meeting and the weak showing for 1Q GDP, the market may struggle to share the forecast.

US Dollar Shrugs Off Decline in Preferred Fed Inflation FigureUS Dollar Shrugs Off Decline in Preferred Fed Inflation Figure

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