US headline inflation rose 0.3% month-on-month, a touch below the 0.4% consensus, while core rose a very modest 0.1% (consensus 0.3%). A softer inflation print helped drive modest USD weakness. Economists at TD Securities think this has limitations, however, as the Fed's meeting next week will likely keep established ranges intact.

US price growth moderated slightly in August

“The total CPI was +0.3% MoM in August, a little below the 0.4% consensus. The core index was +0.1% MoM, well below the 0.3% consensus and down from +0.3% in July, +0.9% in June, +0.7% in May and +0.9% in April. The 12-month change in the overall CPI fell to a still-high 5.3% from 5.4%; the 12-month change in core fell to 4.0% from 4.3%.”

“The reaction following the CPI print was playbook, with a softer core measure contributing to a knee-jerk reaction lower in the USD. But, in gauging the capacity for further retrenchment, we think the dip will be fairly shallow for the USD as the Fed's shadow lingers. For EUR/USD, that should mean fairly rangebound behavior until then, with the 1.1909 level key resistance and 1.1750 pivotal support.”

“While the inflation numbers might be the start of some ‘relief’ and positive for high beta/risk currencies, we think the market will need to get through the Fed meeting first before it can break ‘free’.


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