USD Fades Disappointing CPI Data Ahead of FOMC

DailyFX

THE TAKEAWAY: US CPI MoM comes in below 0.2% estimates at 0.1% -> CPI YoY comes in at 1.5% vs. 1.6% estimated -> CPI Ex Food and Energy meets estimates of 1.8% -> USD Lower

U.S. CPI for the month of August came in below expectations on a month by month basis, but met economists’ surveys for the Ex Food and Energy YoY print at 1.8%. Hourly wages in the U.S. rose 0.7% from a year earlier, but major pressures on the month over month readings came from energy costs that fell 0.3% from July.

The Consumer Price Index is an economic measure for differences in prices in the U.S. either on a month over month or year over year basis. The index tracks a basket of goods and services and is meant to give an overall picture of price changes in the economy. The print is especially important due to Fed fears of declining inflation levels under their zero interest rate policy. Lower inflation levels at this stage would be fuel for Fed doves to push ahead with continued asset purchases while a slightly higher inflation print would be viewed as support for the inevitable and necessary taper of QE3.

August

Actual

Forecast

Prior

CPI MoM

0.1%

0.2%

0.2%

CPI Ex Food and Energy MoM

0.1%

0.2%

0.2%

CPI YoY

1.5%

1.6%

2.0%

CPI Ex Food and Energy YoY

1.8%

1.8%

1.7%

CPI Core Index SA

234.302

234.341

234.004

CPI Index NSA

233.877

233.963

233.596

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) (5-Minute Chart)

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USD_Fades_Dissapointing_CPI_Data_Ahead_of_FOMC_body_Picture_2.png, USD Fades Disappointing CPI Data Ahead of FOMC

Source: FXCM Marketscope

Although weaker than expected MoM and YoY CPI data would usually be viewed in the context of a taper vs. no taper debate, market participants seem to be standing on the sidelines ahead of the FOMC rate decision and announcements on asset purchases. Although misses in key CPI data might have normally stirred speculation as to whether the Fed would delay a taper in favor of higher price levels, the market is not trying to front run the Fed ahead of tomorrow.

Take note that markets have and will most likely remain tight due to the major event risks ahead. Stay up to date on developments live by following the DailyFXTeam Twitter or checking out the live trading room in the Analyst on Demand service.

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USD_Fades_Dissapointing_CPI_Data_Ahead_of_FOMC_body_Picture_1.png, USD Fades Disappointing CPI Data Ahead of FOMC

For more information on event risk, check out the DailyFX Calendar.

Gregory Marks, DailyFX Research Team

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