The US dollar came under renewed selling pressure on Friday amid a soft CPI report. Headline CPI printed at 1.7% y/y, while the market was expecting a reading of 1.8%. The core gauge, which excludes the most volatile components, held steady at 1.7%, matching expectations. The report is definitely not a game changer as weakening inflation pressures are no secret. However, this is another warning bell that is calling the Fed to take it easy with tightening.
The minutes of the July’s FOMC meeting are due for release this Wednesday and they’ll likely show that anemic inflation pressure has kept Fed members on their toes. We do not expect the monetary institution to lift borrowing rates in September, rather wait for December. However, Yellen will certainly give further details because of the balance sheet run-off. This could be as good a time as any to set a hard date for the kick-off.
EUR/USD bounced as high as 1.1847 on Friday afternoon and has stabilized at around 1.1820 since then. July’s retail sales are due for release today. Headline gauge is expected to have risen 0.4% m/m compared to a contraction of 0.2% in the previous month, while sales excluding auto and gas should increase 0.4% m/m, compared to a decrease of 0.1% in June. A solid print of those indicators could ignite a dollar recovery as it would bode well for the US consumption and to some extend inflation.
By Arnaud Masset