Inflation Ticks Higher; Dollar Softens

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Inflation Ticks Higher; Dollar Softens

OCTOBER 13, 2021

The U.S. dollar was largely weaker overnight as traders squared positions before this morning’s inflation data and minutes from the latest Fed meeting are released this afternoon. 

Overview

This morning’s Consumer Price Index was a shocker.  Prices paid by U.S. consumers shot up higher than economists had forecast in September.  CPI increased 0.4% from August which represents a 5.4% yearly rise.  Excluding volatile food and energy prices, the so-called “core” inflation rose 0.2%.  All above expectations and highlights the persistence of inflationary pressures and throws cold water on the argument that higher inflation is “transitory.”

Today’s data will likely embolden the Federal Reserve to start tapering its quantitative easing program as early as next month.  At 2 p.m. the Fed will release the minutes of their last FOMC meeting.  The hope is that the minutes will provide some insight into the Fed’s thinking, and we will be able to better gauge the pace of their “taper.”

Outside of inflation and monetary policy, markets will be keeping an eye on earnings season which is likely to have an impact on risk sentiment. JP Morgan reported before the bell this morning.  Bank of America, Goldman Sachs, and Morgan Stanley are still on the deck for this week.

What to Watch Today…

  • FOMC meeting minutes at 2 p.m.

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EUR  

The beleaguered Euro has found some respite overnight as the U.S. dollar faltered.  The common currency fell to a fresh 15-month low yesterday as the European Central Bank maintained a dovish outlook this week, highlighting the growing differences between the U.S. Federal Reserve and the Bank of England.  Until the ECB changes its tone, the Euro is likely to hang near the bottom of recent ranges.

GBP  

The British pound is up slightly as the greenback is down across the board.  The uptick comes despite disappointing domestic data.  The U.K. economy grew less than expected with most of the downtrend due to the service industry.  GDP rose 0.4% in August, according to the Office for National Statistics, missing estimates of a 0.5% gain.  While GDP growth has moderated, the economy overall seems to be on the right track.  Yesterday, data showed record job gains and job openings for the U.K.

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