US inflation data may offer limited signals for the USD - ING

Viraj Patel, Research Analyst at ING, suggests that while investors await nervously to see what comes next of President Trump’s trade spat with the rest of the world, the focus today turns to a fairly crucial US CPI report given the prevailing goldilocks market backdrop that has transpired in recent trading sessions.

Key Quotes

“We think fears over escalating US inflation may in fact be put to rest today – with the latest CPI figures set to show headline inflation staying rooted around 2.2-2.3% YoY (largely an oil price and base effects story), while importantly the core reading is expected to print unchanged at 1.8% YoY. Indeed, after the low wage inflation reality check in the Feb US jobs report, bond market bears may for now find little evidence in a benign US inflation backdrop to justify adding to short positions. Moreover, with the Fed tightening cycle all but perfectly priced into the US curve, there may be very little positive $ signals for markets to extract from today’s CPI report – beyond confirmation of a late-cycle US economy.”

“USD/JPY continues to trade directionless in the near-term – with yen strength stemming from the political scandal involving the Japanese FinMin Aso proving to be fairly short-lived. The consensus narrative now seems to have joined us in calling for USD/JPY to move to 100 –the speed at which we get there (and whether we undershoot this level) depends on US trade policy.”