USD Shrugs Off Lower Than Expected CPI Data

DAILY FX WRAP – USD shrugs off lower than expected CPI data as participants focus on today’s FOMC minutes, while CAD weakens as a consequence of soft energy prices

The USD has been the main focus on a day where the key risk events came in the form of US CPI and FOMC minutes. The European morning saw relatively light news flow with no tier 1 data; of note, the German parliament voted in favour of the Greek bailout program as expected, but this failed to have a material effect on financial markets.

The notable data of the day saw US CPI print broadly in line with expectations, with the M/M figure out of line with Exp. (M/M 0.10% vs. Exp. 0.20%), with the miss being attributed to lower airfares. Given that the CPI data is not substantially out of line and weakness was attributed to lower air fares, the miss on the data will likely not have a significant enough macro impact to alter perception of timing of a Fed rate hike, and thus, the initial fast money move higher in EUR/USD was pared shortly after the data. As such, the USD ended the European session relatively flat, despite spending much of the day in the red. Looking ahead, participants will be looking at today’s FOMC minutes for any indication as to when a rate lift off will occur, as well as to how close the US economy is to meeting the central bank’s criteria.

Away from the USD, commodity currencies such as CAD, NOK and NZD have all experienced weakness today, as the commodity complex has seen softness with the exception of precious metals; base metals have been under pressure as a result of demand concerns from China, with iron ore seeing its largest decline for a month and copper printing fresh 6 year lows. While elsewhere, the energy complex also resided in negative territory for much of the day, with today’s US DoE inventories showing a build of 2620K vs. an Exp. drawdown of -820K.

Looking ahead, tomorrow’s highlights including UK retail sales, US weekly job numbers and comments from ECB’s Nowotny, as well as Fed’s Williams and Kocherlakota.

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