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US Dollar Unchanged Even Though CPI Data Disappointed

US Dollar Unchanged Even Though CPI Data Disappointed

Daniel Dubrovsky, Senior Strategist

Talking Points

  • US Dollar little changed as CPI report crossed the wires
  • Headline inflation unexpectedly slowed, core CPI in-line
  • Fed cited “Brexit” vote potentially being a consequence

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

The US Dollar experienced a modest reaction against its major counterparts following the release of the May US Consumer Price Index (CPI) data. The data showed that consumer prices increased 0.2 percent (MoM) and 1.0 percent (YoY). Both of these figures fell short of economists’ projections of 0.3 percent (MoM) and 1.1 percent (YoY). In addition, the readings cooled from April’s 0.4 percent (MoM) and 1.1 percent (YoY) pace.

Meanwhile, consumer prices excluding the volatile food and energy variables – often referred to as ‘core’ – came in at 0.2 percent (MoM) and 2.2 percent (YoY). Both values came in-line with expectations and were unchanged from April’s report. Referring to the Citigroup Global Markets’s US economic surprise index, data has tended to outperform relative to economists’ expectations since early May. With that in mind, today’s CPI data counters the trend.

Wednesday, the Federal Reserve announced its monetary policy views after holding rates unchanged as widely expected. In her press conference, Chair Janet Yellen mentioned that survey-based inflation expectations have been falling. However, their longer-term view suggests that evidence points to prices moving up to 2 percent. In addition, the Fed’s preferred measure of inflation – core personal consumption expenditures or (PCE) - received a downgrade in estimates to a 1.6 percent pace in 2016 from 1.7.

The Fed also mentioned that the upcoming “Brexit” vote was factored into yesterday’s decision. Janet Yellen added that a vote for the United Kingdom to exit the European Union could have consequences for the global financial markets. As a result of this, the central bank took a rather cautious approach to their outlook. This could explain why the US Dollar experienced such a restrained response to the CPI figures as Brexit fears dictate sentiment.

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