Talking Points:

- The Consumer Price Index (CPI) came in at 1.9%, slightly higher than estimates at 1.8%; core inflation also beat expectations at 1.7% versus the expected 1.6%.

- Third rate hike for 2017 is back in play at around 50/50 split.

- The US Dollar given a boost against the Canadian Dollar but it didn’t last long.

- See the DailyFX Economic Calendar for upcoming economic data and for a schedule of live coverage see the DailyFX Webinar Calendar.

Consumer Price Index

Markets are pleased with the inflation and jobs data coming out of the United States this morning. The headline CPI YoY figure for August came in at 1.9% beating estimates at 1.8%. The core figure was also better than the expected 1.6% coming in at 1.7%.

CPI assesses changes in the cost of living by measuring changes consumer pay for a set of items. CPI serves as the headline figure for inflation. Simply put, inflation reflects a decline in the purchasing power of the dollar, where each dollar buys fewer goods and services. In terms of measuring inflation, CPI is the most obvious way to quantify changes in purchasing power. The report tracks changes in the price of a basket of goods and services that a typical American household might purchase. An increase in the Consumer Price Index indicates that it takes more dollars to purchase the same set basket of basic consumer items. Inflation is generally bad news for the economy, causing instability, uncertainty and hardship.

US Labor Market

We also saw strong figures from data from the Initial Jobless Claims report which came in at 284k versus 300k expected. Continuing claims also beat estimates at 1944k versus the expectation of 1965k. The trend of a tightening labor market continues and so does stagnant wages. In August, average weekly earnings increased by a meager 0.9% versus 1.1% in July.

The Next Rate Hike

CME Group’s FedWatch Tool now sees a near 50-50 chance that the Fed will raise rates in December. The chart below shows a 48% chance that rates will increase by at least 25 bps by the end of 2017. This model is subject to change given further economic developments. The Fed’s 2% inflation target is a strong determinant of a rate hike.

Strong US Jobs and Inflation Data Boosts Gives the US Dollar a Short-Lived Rally

Source: CME Group FedWatch Tool

Below is a list of economic releases that has driven the US Dollar higher:

- USD Initial Jobless Claims (Sept 9): +284K versus +300K expected, from +298K

- USD Continuing Claims (SEP 02): +1944K versus +1965K expected, from +1951K previous (revised higher from 1940K)

- USD Real Avg Weekly Earnings (YoY) (AUG): +0.9% versus +1.1% previous

- USD Real Avg Hourly Earnings (YoY) (AUG): +0.6% versus +0.7% previous

- USD Consumer Price Index (MoM) (AUG): +0.4%versus 0.3% expected, from 0.1% previous

- USD Consumer Price Index (YoY) (AUG): +1.9%versus 1.8% expected, from 1.7% previous

- USD Consumer Price Index Ex Food & Energy (YoY) (AUG): 1.7% versus 1.6% expected, from 1.7% previous

See the DailyFX economic calendar for Thursday, September 14, 2017

Chart 1: USDCAD Index 15-minute Chart (September 14, 2017 Intraday)

Strong US Jobs and Inflation Data Boosts Gives the US Dollar a Short-Lived Rally

The chart above shows that the US Dollar rallied against the Canadian Dollar but it was short-lived. After reached 1.2239, USDCAD retraced down to 1.2194 as traders faded out the move.

--- Written by Dylan Jusino, DailyFX Research