The market environment has been rather unfavourable for USD recently. Does today’s consumer price data have the potential to stop the downside move in USD? In the view of economists at Commerzbank, it seems increasingly difficult for USD to appreciate further.

It is likely to be too early to write off USD

“It is expected that the next Fed meeting will provide another 75bp hike so it should be difficult for expectations to rise further than that. For that to happen inflation would have to be terrifyingly high, which seems unlikely though.”

“The Fed is likely to stick to its course despite a lower overall inflation rate and should continue its determined fight against inflation. The fall in the headline rate might nonetheless fuel speculation on the markets that the end of the rate hike cycle in the US might have been reached soon, which could principally put pressure on USD. As a result, we see the downside risk in USD dominating today.”

“However, market sentiment is also likely to play an important role. If this were to change USD is likely to be in higher demand. It is therefore likely to be too early to write off USD.”

See – US CPI Preview: Forecasts from 12 major banks, inflation begins to ease