US inflation Quick Analysis: A bit more ammunition for USD bulls, as if they need it

  • US Core Inflation came out at 2.4%, slightly higher than expected.
  • This adds to the (almost) closed case of a rate hike in September.
  • The US Dollar bulls got another small reason to buy, and they already have many.

The US Core Consumer Price Index advanced by 2.4% YoY, above 2.3% expected. It thus continues its gradual march forward at an even faster clip. This is not a huge deviation, especially given the fact that month over month, it came out at 0.2%, as expected. Nevertheless, higher inflation means higher rates and a strong US Dollar. The Fed targets the Core PCE which is only published at the end of the month. Nevertheless, a higher Core CPI implies a higher Core PCE.

The US Dollar bulls are already on a roll. The latest crisis in Turkey fueled demand for the safe-haven greenback against all currencies except the safe-haven Japanese yen. Fear that the European banks with exposure to their neighbor country gripped all markets.

But even without Turkey and inflation, the US Dollar already enjoyed the trade tensions between the US and China which have also triggered haven flows. And the buck has some positive reasons to rise: at 4.1% annualized GDP growth, the US economy grew at the fastest pace in four years. Employment is robust as well. These are good reasons to raise rates, especially for the current composition of the Fed which is more hawkish than last year.

For more details, see:  Dollar Domination: 3 reasons why the Dollar remains King, and why it could fall in mid-fall

All in all, the inflation report is not a game-changer but extends the current trend of a strong US Dollar.

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