US Inflation Quick Analysis: Doomsday will wait, but second “sell the fact” on the dollar looks near

  • US inflation figures for March beat estimates but only marginally.
  • Overhyped expectations may lead to a "buy the rumor, sell the fact" response. 
  • Another scare, about J&J's jabs, may also push the dollar lower. 

Disappointment is the only option when expectations are so high – markets had been abuzz about surging inflation, making an "as expected" figure a trigger to sell off the dollar – exactly as previewed

The Core Consumer Price Index came out at 1.6% yearly, exactly as the economic calendar showed. While headline CPI beat with 2.6% against 2.5%, that is hardly an earth-shattering result. However, the mild moves on the calendar have caused considerable price action – EUR/USD is some 30 pips higher, attacking the monthly highs. Other currencies are also gaining ground against the dollar. 

Apart from the short-term reaction, it is essential to note that 1.6% annual underlying inflation was last seen in late 2020 – and it remains below the pre-pandemic levels above the 2% level. That 2% threshold is the Federal Reserve's target. Doomsday inflation will have to wait.

Officials at the world's most powerful central bank are probably sighing in relief, as they shrugged off any worries of rising prices as transitory. They can continue keeping interest rates near zero and pump $120 billion per month in bond-buying. For the dollar, it means additional pain in the medium term.

Returning to the nearer term, the greenback may be gearing up for another "buy the rumor, sell the fact" response. Authorities in the US have called to halt administering Johnson & Johnson's COVID-19 jabs, potentially slowing America's exit from the crisis. Immunization is also used in other countries.

The move came after six severe cases of blood clots were identified in the US, one of them tragically ending in death. However, nearly seven million people have received single-shot vaccines. That implies that after the dust settles, inoculations may return in some form. 

The safe-haven dollar benefited from the scare. Will it be sold off once more information about these jabs is available? 

Bank to the Future: Interest rates return to market center stage

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