Yesterday’s eagerly awaited US inflation figures led to a major weakening of the USD. Reasonably than heading in the direction of 1.16, EUR/USD is again on observe for 1.17 this morning, Commerzbank’s FX analyst Michael Pfister notes.
The majority of the value shock is prone to hit US customers
“Nonetheless, market members have been initially uncertain the place the figures would take them. That is comprehensible, on condition that the figures despatched combined alerts. The year-on-year headline fee got here in 0.1 proportion factors decrease than anticipated; the year-on-year core fee was 0.1 proportion factors larger than anticipated; and the 2 month-on-month charges have been in keeping with expectations.”
“So why the dovish response? In any case, between three and 9 foundation factors of further rate of interest cuts have been priced in over the following eight Fed conferences. Market members apparently targeted on the truth that the core items part was not the decisive issue; moderately, the upward shock in core inflation was pushed extra by providers. This most likely alleviated market considerations in regards to the impression of tariffs, as the consequences of those are prone to be seen primarily on this part.”
“Nonetheless, delayed doesn’t imply cancelled. Presently, firms nonetheless appear to be absorbing a lot of the tariffs. The not too long ago introduced larger tariffs solely got here into power final week, though Donald Trump’s latest statements recommend that additional tariff stress is probably going. The truth that it’s taking longer than anticipated doesn’t imply that the all-clear may be given. The majority of the value shock is prone to hit US customers, though Trump vehemently denies this. On the very newest, the mixture of political stress on the Federal Reserve’s independence and elevated inflation dangers could have a fair stronger detrimental impression on the US greenback by then.”
