US: Another inflation surprise to lift the dollar – MUFG

The major foreign exchange rates have remained relatively stable overnight with the dollar continuing to trade close to recent highs. Focus shifts to US CPI report. In the opinion of economists at MUFG Bank another inflation surprise would give the dollar a boost.

All eyes on the US CPI report following recent significant upside surprises

“Speculation had built up following the stronger NFP report for July that the Fed could announce QE taper plans as soon as at the September FOMC meeting and start the tapering process before the end of the year. A slower start and more gradual tapering plan would help to dampen US dollar strength in the near-term.”

“The report is expected to reveal that the annual rate of headline and core inflation remain elevated at 5.3% and 4.3% respectively in July. Inflation has surprised significantly to the upside in the last four CPI reports. We would expect the US dollar to strengthen today if there is another upside inflation surprise with risks tilted in that direction.”