US Dollar Could Get Dumped On Valentines Day

Market Analysis /
14 Feb 2018

Inflation is the headline act yet again on Wednesday, but this time in the US as the CPI reading for January is released at 13:30 this afternoon. The reading could well make or break for a number of key talking points recently, with the print looking to dominate discussions over the economy, and monetary policy. Expectations are still for 4 hikes in the base rate in 2018 but movements in the inflation rate could well see this outlook shift.

 Ever since the jobs report the discussion has been around the inflation issue, the dollar has started this week where it left off last week after the big falls on stock markets with not many investors betting on a strong dollar. The recent swings in stock indices have led to an equally uncertain short term future for the greenback. With this reading from the US being touted as key for the next directional moves this afternoon could be pivotal for the next directional dollar move.

 A strong CPI number with inflation on a yearly basis staying above the key 2% level could well garner a similar reaction that seen at the Feb jobs report, when we saw average hourly earnings print stronger than expected. We saw stocks come off, and yields and the dollar up, that similar reaction would lead to talks off 4 rate hikes again and leave the recently stabalised stock market ready for a freefall yet again.

 So it is a day of dollar risks and even if we do get a positive reading, we could read into it two ways strong number could well see many believe that the fourth rate hike is on its way, which would push stocks lower and give yields and the dollar something to shout about. However, it would like have to be a pretty big beat if the dollar were to rally strongly. A lower than expected reading would of course move us away from the prospect of extra Fed tightening this year and leave the 3 hikes on the table. However if the market reads a better than expected figure as a just the US economy slowing down from a growth perspective then that could cap any rallies on the dollar and see it lose ground while stocks remain stable.

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