Dollar extends losses but CPI miss not a game changer

Today’s release of US inflation figures have been far from impressive, underscoring Donald Trump’s concerns over the Federal Reserve’s projected rate hikes. The dollar, which was already on the way down against European and commodity currencies after Trump yesterday said the Fed was making a "mistake" and described the path of rate hikes as being "crazy," weakened further in the immediate aftermath of the data release. The weakness in the dollar – combined with relatively lower and yields – helped to underpin gold, which hit a high so far of around $1210.

According to the US Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 0.1% both on the headline and core fronts in September, missing estimates of +0.2% respectively. On a year-over-year basis, headline CPI was 2.3% vs. 2.4% expected, down from 2.7% the previous month, while core CPI was unchanged at 2.2% but below 2.3% expected.

However, the CPI miss is not a game changer by any means, despite the immediate negative dollar reaction. It is only one month’s worth of data and unless it forms a trend the Fed is unlikely to change its interest rate projections. Also, the central bank will aim to maintain its credibility by being independent, so Trump’s criticism is also unlikely to make much of a difference in terms of future rate hikes. So, don’t be surprised to see the dollar resume its bullish trend in the not-so-distant future, possibly a lot sooner than may appear at the moment.