The dynamics of the CPI in the US in September maintained a value of 0.2% m/m and slowed from 2.5% to 2.4% y/y. The increase in core prices, vital in the Fed's eyes, accelerated to 3.3% y/y after a 0.3% m/m jump. At this level of core price gains, achieving the inflation target in the medium term is not possible. The data helped the dollar maintain its strength, with only CHF and JPY being slightly stronger among the major currencies over the past week. The EUR/USD pair settled below the 1.10 handle, and the technical setup suggests a decline toward the 1.08 might be on the cards.
This time, the high inflation reading in the US cannot be attributed to rounding. The exact value of yesterday's core price growth rate was 0.312% m/m. However, the data did not come as a huge surprise. Regarding the monthly jump in core inflation, the average forecast in the Bloomberg agency survey was 0.24%.
The readings also do not change the perception of the near-term intentions of US monetary authorities. It is evident that the FOMC has entrenched the belief that inflationary pressure is under control and that labour market developments will determine the direction of monetary policy. Recent information in this area has been encouraging. After a summer increase, the unemployment rate returned to 4.1%, and over 250,000 jobs were added in the non-farm sector, exceeding expectations by 100,000.
The August price rise was insufficient to dissuade the Fed from boldly starting the easing cycle with a half-percentage-point cut. On the other hand, the latest information provides an additional argument for more measured adjustments in the future. In light of the FOMC meeting minutes published on Wednesday evening, many policymakers hesitated to sharply reduce the cost of money from the 5.25–5.50% range, the highest in over two decades. After recent employment and unemployment data, market expectations have been adjusted. Approximately 25 basis points of reductions have been erased from the overall pricing of adjustments at the November and December meetings.
Abandoning the belief in the possibility of continuing sharp cuts temporarily supported the US dollar, especially as it coincided with market concerns about the situation in the Middle East. The EUR/USD setup (a reversal at 1.12 and a break below 1.10 resulting in a double top) and uncertainty ahead of the US presidential elections suggest that the recovery from the summer weakness may continue for a while.
This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.
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26 Sept 2024 15:30
The Swiss National Bank cuts must rely on FX interventions to dent the strength of the franc
The dynamics of the CPI in the US in September maintained a value of 0.2% m/m and slowed from 2.5% to 2.4% y/y. The increase in core prices, vital in the Fed's eyes, accelerated to 3.3% y/y after a 0.3% m/m jump. At this level of core price gains, achieving the inflation target in the medium term is not possible. The data helped the dollar maintain its strength, with only CHF and JPY being slightly stronger among the major currencies over the past week. The EUR/USD pair settled below the 1.10 handle, and the technical setup suggests a decline toward the 1.08 might be on the cards.
This time, the high inflation reading in the US cannot be attributed to rounding. The exact value of yesterday's core price growth rate was 0.312% m/m. However, the data did not come as a huge surprise. Regarding the monthly jump in core inflation, the average forecast in the Bloomberg agency survey was 0.24%.
The readings also do not change the perception of the near-term intentions of US monetary authorities. It is evident that the FOMC has entrenched the belief that inflationary pressure is under control and that labour market developments will determine the direction of monetary policy. Recent information in this area has been encouraging. After a summer increase, the unemployment rate returned to 4.1%, and over 250,000 jobs were added in the non-farm sector, exceeding expectations by 100,000.
The August price rise was insufficient to dissuade the Fed from boldly starting the easing cycle with a half-percentage-point cut. On the other hand, the latest information provides an additional argument for more measured adjustments in the future. In light of the FOMC meeting minutes published on Wednesday evening, many policymakers hesitated to sharply reduce the cost of money from the 5.25–5.50% range, the highest in over two decades. After recent employment and unemployment data, market expectations have been adjusted. Approximately 25 basis points of reductions have been erased from the overall pricing of adjustments at the November and December meetings.
Abandoning the belief in the possibility of continuing sharp cuts temporarily supported the US dollar, especially as it coincided with market concerns about the situation in the Middle East. The EUR/USD setup (a reversal at 1.12 and a break below 1.10 resulting in a double top) and uncertainty ahead of the US presidential elections suggest that the recovery from the summer weakness may continue for a while.
See also:
The Swiss National Bank cuts must rely on FX interventions to dent the strength of the franc
US dollar rate without new lows after sharp Fed rate cut; EUR/USD pair stays below the 1.12 handle
NFP report does not indicate USD direction; risk aversion supports CHF demand
Turkish inflation drops by almost 10 percentage points
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