USD Lifted, Gold Dips on Upside Inflation Surprise

[MongiIG]

USD, CPI PRICE ANALYSIS & NEWS

• US CPI Above Expectations, Core CPI In-Line
• USD Picks Up, Gold Dips

US CORE CPI FALLS SHORT OF EXPECTATIONS

DATA RECAP: The headline rate rose 0.4% on the month, taking the yearly rate to 5.4%, both figures 0.1ppt above expectations. The core reading, however, matched estimates at 0.2% m/m and 4.0% y/y. Interestingly, more sticky components such as shelter costs rose 0.2ppts to 0.4%. Meanwhile, transitory factors such as airline fares, used cars and apparel continued to slide.That said, with the headline rate printing above expectations, this will likely reaffirm the view that inflation is not as transitory as markets and central banks had initially anticipated.

US INFLATION COMPONENTS

Source: BLS

How to Trade After a News Release

MARKET REACTION: Given the current market narrative of rising stagflation concerns, the market reaction to the release was on the whole subdued. The USD did pick up alongside US yields with gold prices dipping from intra-day highs. Now while this release will have little baring for the upcoming taper announcement, eyes are now turning towards Fed rate hikes in 2022, which as it stands, lift-off is fully priced in by November 2022. Looking ahead, eyes will be on the FOMC minutes.

USD, US RATES & GOLD REACTION TO US CPI

Source: Refintiv

By Justin McQueen, Strategist, 13th October 2021. DailyFX