And the fallout from the CPI miss continues as markets attempt to assess what this means for the Fed’s increasingly convoluted reaction function.
The knee-jerk reaction was of course a lower dollar and lower yields.
Looking out across FX land, this just adds to the ongoing dollar malaise.
As Bloomberg notes, “EURUSD rose to fresh high at 1.1446 before pausing ahead of 1.1450 where large expiry rolls off today, introducing some related supply”…
“Weaker-than-expected CPI and retail sales data will result in further downscaling of Fed rate hike expectations,” Georgette Boele, a currency strategist at ABN Amro Bank in Amsterdam noted after the data hit. While her year-end EURUSD target is 1.15, ABN now says a test of 1.16-1.17 range is “looking more likely” and a break higher would be “very bullish.”
As for the pound, “GBPUSD hit a fresh high above 1.3000 before hedge fund offers layered to 1.3030 capped gains”…
And the aussie hit a 15-month high…
Meanwhile, gold is surging to a two-week high…
“The downside surprise in inflation and downside surprise in retail sales data was not good news for the dollar index,” Naeem Aslam, chief market analyst at Think Markets U.K. Ltd. in London, wrote in a note.
“Gold is the net beneficial of this data [as] this increases the anxiety and creates a lot of questions about the current strategy which the Fed is using.”
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Could be the first concrete sign of a recession………retail sales and inflation have been weak for months and now consumer sentiment turning bearish.