US: Waiting on the inflation catalyst
The US dollar index has eased back modestly over the past week after trading at its 2024 highest. The repricing of rate expectations following the hot US payrolls figures has offered some continued support in the dips to the dollar: this week, the US CPI release (tomorrow) can be the new catalyst for larger positioning shifts in FX.
Our economics team’s estimates are aligned with consensus for a 0.3% month-on-month core print, but we think the risks are skewed more towards a 0.2% than a 0.4% print. Accordingly, there are some downside risks for dollar, even though our base case is for a consensus print to leave few marks on the FX market. Ultimately, investors may need to look elsewhere to fine tune rate Federal Reserve rate expectations, which currently see a first rate cut in June. A week retail sales print on Thursday may revamp expectations for a May rate cut, and take the dollar lower.
That said, evidence for the jobs market and the lack of faster disinflation should still be enough to discourage aggressive dollar selling. We remain comfortable with our call for some extra resilience in the dollar in the first quarter, before a clearer downtrend emerges from the second quarter.
Today, the US calendar is quiet data-wise. On the Fed front, there are speeches from Michelle Bowman, Thomas Barkin and Neel Kashkari.
Our economics team’s estimates are aligned with consensus for a 0.3% month-on-month core print, but we think the risks are skewed more towards a 0.2% than a 0.4% print. Accordingly, there are some downside risks for dollar, even though our base case is for a consensus print to leave few marks on the FX market. Ultimately, investors may need to look elsewhere to fine tune rate Federal Reserve rate expectations, which currently see a first rate cut in June. A week retail sales print on Thursday may revamp expectations for a May rate cut, and take the dollar lower.
That said, evidence for the jobs market and the lack of faster disinflation should still be enough to discourage aggressive dollar selling. We remain comfortable with our call for some extra resilience in the dollar in the first quarter, before a clearer downtrend emerges from the second quarter.
Today, the US calendar is quiet data-wise. On the Fed front, there are speeches from Michelle Bowman, Thomas Barkin and Neel Kashkari.
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