Market Bullish on USD As It Comes Back After Softer Inflation

Posted Friday, August 11, 2023 by
Skerdian Meta • 2 min read

Yesterday the inflation report came a bit n the soft side, missing expectations, although the headline YoY figure did post a 2-point jump. But, as the report below shows, it missed expectations of 3.3% and core CPI ticked lower, against expectations that it would remain unchanged, showing that prices for everyday goods are also falling.

The USD tumbled lower, while risk assets such as stock opened higher and continued to climb. Although we saw a reversal soon after and US stocks gave back their previous gains, causing the S&P 500. The foreign exchange (FX) market showed more activity and excitement compared to the stock market. However, this enthusiasm quickly diminished after the release of the Consumer Price Index (CPI) report. This decrease in market enthusiasm reflects the prevailing cautious sentiment that has become evident this month.

As of now, the S&P 500 index has only managed to achieve a decent increase of 40 points in the early US session, reaching a high of 4,544 points, but then turned bearish and ended the day at 4,468 points. USD/JPY fell to 143.20 but then reversed and surged to 144.80, where it closed the day. Commodity dollars also ended up lower, with the CAD leading the way, which was dragged down by the $2 decline in crude Oil. So, despite the miss in most inflation expectations for July, the USD still ended up bullish at the end of the day. This shows that markets are still bullish on the USD and they expect further tightening by the FED. So, we continue to remain long on most USD pairs as well.

US July 2023 Consumer Price Index Report

US core CPI

US core CPI
  • July CPI MoM was +0.2% versus +0.2% expected
  • June CPI MOM was +0.2%
  • July CPI YoY 3.2% versus 3.3% expected
  • June CPI YoY was 3.0%

Core measures:

  • Core CPI MoM +0.2% versus +0.2% expected. Last month was 0.2%
  • Core CPI YoY 4.7% versus 4.8% expected. Last month was 4.8%
  • Shelter % versus 0.4% last month. Year on year % versus 7.8% last month
  • Real weekly earnings month to month % versus +0.5% last month
  • Services less rent and shelter +0.2% MoM vs +0.2% prior

The market was pricing in a 13% chance of a FED hike at the September meeting and around 35% for November.

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