After a positive run in the earlier session, the Greenback returned some of its latest winnings when the U.S. CPI was released. However, other lower-yielders were unable to take advantage of this dollar dip.
- U.S. headline CPI at 0.1% vs. 0.2% forecast in June, 0.2% previous
- U.S. core CPI posted another 0.2% uptick as expected in June
- U.S. initial jobless claims down from 232K to 214K vs. 226K forecast
- New Zealand Business NZ manufacturing index down from 54.4 to 52.8
- Chinese trade balance due next
U.S. CPI disappoints
Stronger than expected PPI figures released earlier in the week buoyed expectations for an upside CPI surprise, but the actual results came in slightly weaker than consensus.
The headline CPI posted a meager 0.1% uptick instead of the estimated 0.2% gain while the core reading simply came in line with expectations of a 0.2% increase. On a year-over-year basis, this translates to a 2.9% read for the headline figure for June.
Components of the June CPI report revealed that indices for food, shelter and gasoline all ticked higher during the month while the energy index brought some drag with a decline in electricity and natural gas prices.
Optimistic remarks from Powell
In an interview with Marketplace Radio, Fed head honcho Powell shared his cheery take on the economy and monetary policy.
When asked about wage growth, Powell acknowledged that they are seeing signs of a pickup, even though it’s slower than they’d like. He also pointed to low productivity as a factor keeping a lid on wages, admitting that it’s still a bit of a puzzle given how tight the labor market is.
Powell reiterated that the U.S. economy is in a very good place. When it comes to inflation, he noted that it has gradually moved up and moving close to target.
As for the trade war, he assured that the Fed has tools at its disposal to address any possible impact on the economy. He did stress, however, that the central bank operates independently of political concerns and focuses on controlling the controllable.
More support for more hikes
Following his colleague Mester’s somewhat more optimistic tone in an earlier interview, Fed official Harker also expressed support for more interest rate hikes down the line.
Although not a voting member, Harker shared that he is open to the idea of four interest rate hikes this year if inflation picks up (But now we know it hasn’t, so far) but continues to back three if not.
He added that the Fed would be comfortable with core PCE inflation of 2.5% but he doesn’t see inflation accelerating past their target.
Major Market Mover(s):
CHF & JPY
The franc and yen found themselves at the very bottom of the forex heap as risk-taking returned to financial markets. U.S. equities posted strong gains, weakening demand for safe-haven holdings.
USD/JPY is up to 112.71, USD/CHF kept climbing to 1.0037, EUR/CHF spiked to 1.1708, EUR/JPY is up to 131.47, GBP/CHF rallied to 1.3219, and GBP/JPY is up to 148.57.
Thanks to stronger risk appetite, the Australian dollar was able to outpace its peers, including its comdoll buddies.
AUD/USD climbed from .7386 to a high of .7420, AUD/JPY bounced from 82.99 to 83.36, EUR/AUD retreated to 1.5731, GBP/AUD dropped to 1.7775, and AUD/CAD is up to .9760.
Watch Out For:
- Tentative: Chinese trade balance (188B CNY surplus expected)
- 4:30 am GMT: Japanese revised industrial production (no change from -0.2% expected)