US dollar slides as inflation numbers cool Fed hike talk
The US dollar is facing some moderate pressure after today’s data slate.
The main driver of it is the PCE report which showed inflation at 4.1% y/y and core inflation at 3.4%. Both of those were precisely in-line with expectations but it appears the market is breathing a sigh of relief that prices didn’t accelerate more. Looking further out, the dramatic call in June oil prices is putting downward pressure in the pipeline and that means this is likely the peak.
As prices begin to fall, it will give the Fed an opportunity to leave rates unchanged rather than hiking. At the moment, the market is pricing in 32 bps of hikes through year end, down from 42 bps after Warsh’s press conference last Wednesday.
Since the release, the euro has risen to 1.1362 from 1.1340. That reverses and earlier decline and puts it slightly higher on the day.
The inflation numbers weren’t the only ones released today and others painted a good picture for the US dollar and the US economy. The final Q4 GDP reading was upwardly revised to 2.1% from 1.6%. Initial jobless claims fell to 215K from 226K and the consumption/income numbers in the PCE report were better than expected.
Despite that, the dollar is 20-25 pips lower across the board.
In terms of cross assets, Treasury yields are lower with 2s down 3 bps on the day to 4.11% and S&P 500 futures are up 0.8% after Micron’s blockbuster earnings.
This article was written by Adam Button at investinglive.com.