The last batch of US data came on the soft side and called into question the actual Fed’s rate path. Indeed, inflationary pressures eased for a third month a row in April with headline CPI printing at 2.2% and the core one, which excludes the most volatile components, moving below the 2% threshold to 1.9%.
April’s retail sales were also weaker than expected as the main measure missed the median forecast of 0.6%m/m to print at 0.4%. Core retail sales rose 0.3% m/m versus 0.5% expected and 0.3% in the previous.Even though the data may just signal a temporary slowdown of the US economy, it definitely ruled out a strong economic rebound in economic activity.
With President Trump’s reforms failing to materialise and weaker than expected inflation, the market is readjusting expectations for the pace of monetary tightening. The entire US treasury yield curve shifted lower on Friday and dragged the greenback down. The dollar index is down 0.66% since Friday and continued to move south on Monday morning.
The single currency and the Swiss franc partially erased last week’s losses and rose 0.75% and 0.83% respectively over the last two trading days. With the June rate hike already priced-in and assuming that Trump’s fiscal plan gets delayed further, we believe that the risk is mostly on the downside for the dollar for now.
By Arnaud Masset