Knowledge from the U.S. Bureau of Labor Statistics confirmed the U.S. headline inflation clocking in at 0.2% m/m in August, the identical as July’s charges and analysts’ estimates.

The annual headline inflation slowed down sharply from 2.9% to 2.5%, slower than the market’s 2.7% estimates. In truth, 2.5% marks the slowest since March 2021!

Headline CPI (m/m): 0.2% (0.2% anticipated and former)
Headline CPI (y/y): 2.5% (2.7% anticipated, 2.9% earlier)

Core CPI (m/m): 0.3% (0.3% anticipated, 0.2% earlier)
Core CPI (y/y): 3.2% (3.2% anticipated, 3.2% earlier)

However earlier than you say “COOL INFLATION MEANS MORE RATE CUTS” you must know that the month-to-month core studying ticked greater from 0.2% to 0.3% as shelter prices rose by 0.5% whereas airline fares and motorcar insurance coverage additionally noticed notable will increase.

Hyperlink to U.S. Shopper Worth Index for August 2024

Market Reactions

U.S. greenback vs. Main Currencies: 5-min

Overlay of USD vs. Main Currencies Chart by TradingView

The U.S. greenback, which noticed bearish stress throughout the Asian session, prolonged its intraday restoration and jumped approach greater on the report’s launch.

The Buck quickly pulled again down, nevertheless, and the greenback appeared prefer it spent the remainder of the day buying and selling in a risk-friendly buying and selling setting.

See, the hotter-than-expected core CPI studying tempered requires a 50bps rate of interest reduce from the Fed this month. As a substitute, the markets are pricing in a 25bps fee reduce in September and one other 25bps reduce in November.

The CME FedWatch instrument now predicts an 86.0% probability of a 25bps fee reduce in September, a lot greater than the 66.0% probability earlier than the report was launched. Possibilities of a second 25bps reduce in November additionally rose from 27.4% to 48.2% after the CPI report’s launch.

The Fed not needing to resort to steep fee cuts calmed buyers who have been anxious in regards to the main central banks needing excessive measures to catch as much as their respective economies.

USD spent the remainder of the buying and selling session buying and selling greater in opposition to protected havens like CHF and JPY however decrease in opposition to “threat” currencies like EUR, GBP, AUD, NZD, and CAD.