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Dollar rebounds after in-line US CPI, Fed pricing stays hawkish
ING strategists say 9bp is still priced for September and a full 25bp hike for December, limiting clarity on front-end rates and keeping FX volatility subdued into Jackson Hole.
ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner said the US dollar strengthened after an in-line US CPI, with markets previously positioned for a hotter print.
They noted the release showed core inflation running at a 1.6% three-month annualised pace, yet Fed expectations stayed hawkish, with 9bp still priced for September and a full 25bp hike for December.
The strategists said the dollar’s negative reaction was brief, pointing to a small dovish repricing in Fed rate expectations tied to the CPI being near consensus, but the currency finished the day stronger, possibly reflecting net long rebuilding after the round of US data.
Looking ahead, they cited upcoming Jackson Hole Symposium conditions and said FOMC minutes may offer insight, but unless there is a major surprise in upcoming data such as PPI, they expect FX volatility to compress further as Fed pricing settles.