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US Dollar Drops, Gold Bounce Back on US CPI Dip

US Dollar Drops, Gold Bounce Back on US CPI Dip

Justin McQueen, Strategist

USD, CPI Price Analysis & News

  • US Core CPI Falls Short of Expectations
  • USD Under Pressure, Gold Bouncing Back

US Core CPI Falls Short of Expectations

DATA RECAP: The headline rate rose 0.3% on the month below expectations of 0.4%, which saw the yearly rate print at 5.3%, matching estimates. The core reading rose 0.1% vs 0.3% expected, while the yearly rate also fell short of expectations at 4% vs 4.2%. Transitory factors that have been a focal point for much of the increase have begun to roll over as used cars saw a slight decrease of 1.5%, marking the biggest monthly drop since November 2016. Elsewhere, stick components such as shelter costs rose a marginal 0.2%. As such, this reinforces the Federal Reserves outlook that the inflation spike is expected to be transitory. Alongside this, with ISM Mfg. and Non-Mfg prices paid (Figure 1.) heading lower, risks to inflation is tilted to the downside.

US Inflation Components

Source: BLS

Figure 1. US CPI vs Average ISM Manufacturing & Non-Manufacturing Prices Paid

How to Trade After a News Release

MARKET REACTION: The USD came under pressure across the board. Similarly, US yields have also dipped in the wake of the inflation report, while gold prices saw a slight bounce. However, given that the Fed acknowledges that they have already hit their taper condition for inflation making substantial progress, the impact of this report on the Fed’s outlook is limited. That said, with equity markets firmer, this will reign in those calls of stagflation.

USD, US RATES & GOLD REACTION TO US CPI

Source: Refintiv

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