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The Dow Jones US Dollar Index showed a limited reaction to the release of the US core personal consumption expenditures data.
The Fed’s preferred measure of core inflation rose 1.6 percent (YoY) in March, in-line with economists’ expectations. That said, this did temper the previous month’s pace when prices grew 1.7 percent (YoY) in February. This pace check would pull the indicator back from its fastest clip of growth since December 2012 and in turn ease pressure in the Fed to pursue a tightening regime.
The US Dollar headline figure – including volatile items like energy and food – showed a modest 0.1 percent month-over-month (MoM) increase in price pressures.
It’s annual pace eased from a 1.0 percent gain to 0.8 percent. From its February low of $26.05, crude oil prices rose 47 percent through the end of April, and the commodity furthered rose more than 75 percent from that February low to its closing price this Friday.
If this buoyancy proves durable, the transitory low-inflation environment that Fed members have reflected on over consistently in policy statements may contribute to the monetary policy conversation.
With the Fed’s dual mandate focused on employment growth and a stable 2 percent inflation target, today’s release showed that US Dollar prices – at least at the moment – are heading in the wrong direction.
The central bank did announce at its most recent monetary policy announcement that inflation should remain low in the near term, but the committee went on to suggest that prices should rise to its target over the medium term. However, after the neutral stance of the Fed at its April 27 policy meeting and the weak showing for 1Q GDP, the market may struggle to share the forecast.