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US CPI for August significantly weaker than expected - ING

FXStreet (Łódź) - Rob Carnell from ING points out that US August CPI disappointed, sliding to 1.7% from 2% on an annual basis, below forecasts of 1.9%.

Key quotes

"Whilst we had expected the core index to nose higher, it was flat, which also resulted in core inflation dipping down again to 1.7% from 1.9%."

"The large fall in energy prices in August (-2.6%mom) was somewhat larger than expected, and was exacerbated by a flat service sector reading (0.0%), softer than trend housing (0.1%), negative apparel (-0.2%), flat medical care, negative recreation(-0.4%) negative education (-0.1%) and softer than usual 'other goods and services,' including tobacco, which was also flat on the month."

"Such uniform declines across CPI subcomponents are rare, and in our experience, usually owe to a common factor, such as poor seasonal adjustment, in the absence of an obvious external cause."

"This weakness does also look rather odd against the backdrop of recently strong retail sales, and anecdotes of rising pricing intentions."

"That said, low and falling energy costs may be helping to offset other cost pressures, resulting in a broader decline than evident simply in the energy subcomponents, so we can’t entirely write it off."

"It is also great timing for such a soft CPI reading, with the FOMC decision later today, and markets anticipating at least some small change in the Fed’s rhetoric."

"We suspect that any such changes will be small, most likely, a tweak to the text referring to the time after QE ends before the first rate hike. Perhaps a replacement of the word 'considerable', in this context."

"Whilst we believed that markets had been anticipating too much in the way of change at this meeting, this release is likely to temper enthusiasm for a bigger adjustment, and if we are right, then markets are likely to take a minimally changed FOMC text in their stride later on."

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