Yesterday's US inflation figures provided little new information, with all figures coming in as expected: The headline rate rose by 0.2% and the core rate by 0.3% month-on-month, Commerzbank’s FX analysts Michael Pfister notes.

USD honeymoon period is not expected to last forever

“The US Dollar (USD) weakened slightly after the release, as the core rate was closer to the rounding limit of 0.2%, but the move was hardly worth mentioning. In the short term, the figures are unlikely to dissuade the Fed from cutting rates again in December. For that to happen, the figures would have to surprise on the upside; after all, policymakers believe that monetary policy is still far too restrictive.”

“On the other hand, the figures were unlikely to necessitate a major rate cut of 50 basis points. In short, the figures provided little news for monetary policy in the coming months. Political factors are more important for the US Dollar at the moment. Yesterday afternoon, the USD continued to make gains. It was difficult to identify a clear reason for this, but it is possible that Trump's announcements that he will choose hardliners for many of the positions is causing further euphoria.”

“This would also make other election announcements more likely, which would lead to higher inflation in the medium term. At the moment, the market is only focusing on the USD-positive factors of these election promises and ignoring the potential problems. However, this honeymoon period should not be expected to last forever.”