There is still some scope for further Dollar weakness – Commerzbank
|US inflation came slightly lower than had been expected. Economists at Commerzbank analyze USD outlook after the US CPI report.
A small surprise in US CPI, a giant jump in EUR/USD
The majority of analysts had expected that the core rate would stand at 0.3% (MoM, seasonally adjusted), but it turned out to be just under 0.2%. ‘So what?’ one might wonder. That does not mean that the inflation issue in the US has now been solved. We might see setbacks over the coming months.
Greenback weakened significantly after the data release. One might ask if an inflation surprise of relatively small absolute magnitude can justify such market reaction. But we've seen similar patterns before. At recent levels, USD exchange rates obviously had priced in quite an unrealistic level of Fed tightening. That part of the USD exchange rates had to be corrected quite quickly.
The prospect of a reduced USD carry is putting pressure on a currency. That bit is the simple part of the story. However, there is one complication. As it is not just the terminal rate that matters (i.e. the rate peak) but also a matter of how long interest rates remain at this high level. That means: there is still some scope toward further Dollar weakness. Wednesday’s market move does not have to constitute the end of the USD weakness.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.