US inflation may keep the Fed from rate cuts this year
The US rate decision on Wednesday may be pushed into the shadow of the consumer price inflation data out earlier in the day.
As IGTV’s Jeremy Naylor reports currency analyst Richard Snow from Daily FX tells traders that so-called "super core" inflation, that's services inflation minus housing, is widely expected to at least hold the last two months of gains at 5.3%, year-on-year, which may mean the Federal Reserve has little or no room to cut rtes. So what will this do to the dollar?
(AI Video Summary)
The US Federal Reserve
The two day interest rate meeting from the US Federal Reserve starts today on this Tuesday, with the conclusion with an announcement at 7:00 in the evening on Wednesday. It will be a pivot point for the week. But before that, I think more importantly, despite the fact we're not expecting any move on interest rates, it will be a much talked about report.
But before then comes the consumer price inflation data out from the US statistics departments. And this is likely to show that we see a continuation of this stickiness with inflation. I think for my money, if you dig down deep into this, it is what my colleague Data Effects Register is quoting super core inflation that services inflation minus housing.
The US services CPI
The US services CPI has been rising in the last two months. April it was 5.3% year on year. You can see here the core CPI is expected to come in at 3.5% year on year, but it's that service sector that is the real worry and I think this is one of the reasons why we're seeing the dollar basket.
Hold on the recent gains, just a quick look at what's happening in terms of the chart. We are as we speak, just before mid-morning on Tuesday, we are seeing no sales in this dollar basket. We're currently trading one here for 86. The way to trade this is, of course, is against the euro. The euro dollar trade is about 60, 70% to the dollar basket.
And you can see here this downdraft that we've got. Yes, some of this is because of what's been happening in France. The snap election has been called and the far right winning out in a lot of seats across the European Union at the weekend. But a continuation of this as we see money going into the dollar and whether or not we see one or two interest rate cuts, this is not going to happen this time around.
US Inflation
It's going to happen towards the end of the year. But I think the stickiness and inflation is going to be something that will be very much talked about by the Fed. Then if we see the Fed tread very carefully around this and suggesting that it might not be the case, that we're going to see an interest rate cut at all this year, I think we're going to get more downside for the euro against that stronger US dollar levels to watch out for what is 721, the 61.8% retracement break that takes you down, then down to what a 675 levels not seen since the 2nd of May this year.
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