Calming inflation is unlikely to stop the dollar from strengthening by Invezz.com

Invezz.com – Most of the focus this week has been on US inflation data, and in fact, markets moved the most when US CPI and PPI data were released on Wednesday, respectively, Thursday.

Rising inflation forced the Federal Reserve to embark on a tightening cycle. At the same time, it reduces your balance sheet in a process known as quantitative tightening (i.e. the opposite of quantitative easing).

So this week’s data, which indicates the change in prices of goods and services in March, was closely watched by market participants. What will the Fed do after the March print?

It turns out that inflation cools. However, despite the deinflation process in full swing, the next stage of the US dollar should be higher. In other words, the Fed is still on track to deliver another increase at its next meeting.

Core inflation remains stubbornly high

The Consumer Price Index for March fell to 5.0% y/y. Good news for those hoping to calm inflation.

But the Fed’s preferred measure of inflation excludes food and energy prices. This means that the core CPI is considered more favorable. It came in at 0.4%, which is not enough for the Fed to announce its final interest rate range this cycle.

But the Fed’s preferred measure of inflation excludes food and energy prices. This means that the core CPI is considered more favorable. It came in at 0.4%, which is not enough for the Fed to announce its final interest rate range this cycle.

However, the dollar fell on the news, as evidenced by the exchange rate’s move above 1.10. Also, the dollar took another hit when wholesale inflation or PPI data was released a day later.

On this occasion, the process of easing inflation was more evident, as the PPI, or Producer Price Index, fell by 0.5%, while the market did not expect changes.

In short, the dollar traded bearish all week as incoming data seemed to support further weakness. But the core CPI reading for March gives contrarian traders hope that the dollar’s next leg is higher than lower.

Post-cooling-off inflation which is unlikely to stop the dollar from strengthening appeared first on Invezz.

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