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US CPI Data Gains Importance In The Market

May 17, 2017
By Daisy Joseph
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The Consumer Price Index (CPI) was released yesterday and investors were interested.

However, the data itself was disappointing as the CPI index showed slow movement for the second month in a row. The rebound in the retail sales data has helped to boost the value of the dollar and greenback in effect. The EUR/USD pair continues to drag due to the expectations of interest rate hikes.

The CPI came to an annualized value of 2.4%, which is less than 2.7% in February. The core inflation rate reduced to 2.0% from 2.2%. Retail sales declined by 0.2% due to decreased demand for vehicles. However, the discretionary spending on clothes has increased by 1.0%, offering some support.

The major support for the US dollar was provided especially by the Fed Fund Futures. 80% of the market is in favor of interest rate hikes in June. The increased borrowing costs will help to keep the dollar steady throughout this month. The central bank is preparing to deliver an exit strategy during the end of 2017 because the officials want to reduce the load on the balance sheet.

The slowing down of economic recovery is not what the Federal Open Market Commission had in mind. This could result in Fed wanting more time before changing the monetary policy. The terminal rate may be fixed close to 3.00% by Janet Yellen, the Fed Chair.

The Fed has commented earlier that the inflation compensation according to the market-based measures is low. The long-term inflation expectations have also not changed greatly.