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Dollar Slips on Inflation Worries

Posted by Joseph Trevisani on Aug 8, 2017 4:58:16 PM

The dollar has had a mixed month as U.S. inflation data has made the case for rate increases  seem less urgent.  With American wage gains languishing below their historical averages  and economic growth anemic the Federal Reserve governors will likely err on the side of caution as they gingerly normalize rates.

Last week's core personal consumption expenditure price index at 1.5 percent annually for June was  slightly stronger than expected but still a dissapointment for Fed policy makers who have been predicting that price changes would accelerate to their 2 percent target for several years.  

In February it looked like the Fed's patience might be rewared as the core PCE price index rose to 1.8 percent, the highest it had been since June 2012.  

The Fed's preferred measure of inflation has not been at 2 percent for more than  five years since April 2012. While the 0.3 percent retreat of  this gauge  in  four months is not the deciding factor for Fed policymakers,  it makes a more agressive normalization very difficult. 

Current expectations are for the central bank to raise the Fed Funds rate 0.25 percent to 1.50 percent in December, the third increase this year and the fastest pace of hikes and the highest level in almost a decade.

The dollar has had a mixed month falling against the yen after reaching 114.48 on July 12th (110..33 4:50 pm NY time) and the Canadian Dollar but gaining versus the euro  after the united currency touched 1.1907 a nineteen month high on August 2nd andalso rising slightly versus the Australian Dollar.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: WWM Alpha Trader

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