The US February CPI print suggests the Fed can be patient before loosening policy. Annual core CPI inflation slowed less than expected (actual: 3.8%, consensus: 3.7%) and super core CPI (core services less housing, a key measure of underlying inflation) remained high at 4.3% for a second consecutive month in February. Granted, inflation momentum is slowing as the monthly increase in the super core CPI edged down to 0.5% in February after rising by 0.9% in January. Regardless, this is still too high relative to a historical average monthly increase of roughly 0.2%.

We see scope for Fed funds rate expectations to adjust higher in favour of USD because US core price inflation remains sticky, and the economic growth outlook is encouraging.