Euro, EM currencies gain on weak US inflation data
Once again, the Federal Reserve’s credibility takes a hit
Asia Unhedged is an unabashed dollar bear, and we looked at the euro’s dip to within a hair’s breadth of the 1.17 mark on Wednesday as an opportunity to fresh long euro positions. The dollar is now at 1.1828 after the release of inflation data for August that (as usual) undershot market expectations.
The core PCE deflator rose just 1.3% year-on-year while the headline number was up just 1.4% year-on-year. The PCE deflator is the Federal Reserve’s preferred gauge of price change because it reflects what consumers pay for what they actually buy somewhat more accurately than the Consumer Price Index. Emerging market currencies also gained on the release.
Once again, the Fed’s credibility is shredded by disappointing (to the Fed) inflation data.