USD on the backfoot and bond yields fall as US CPI meets expectations

Inflation at 5.4% and in line with analysts’ expectations in July

The price of goods and services in America rose again in July, albeit in line with analysts’ expectations, on high levels of pent-up demand.

The consumer price index increased by 5.4% in July year-on-year, as reported by the Labor Department, in a continuation of the levels seen in June.

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Commenting on the market reaction to US CPI coming in line with expectations, Mike Owens, Global Sales Trader at Saxo Markets, said: “With US CPI having beaten expectation for most of 2021, it’s almost a surprise to see the numbers come out in line with expectations.”

The dollar is down by 0.14% against the pound following the news to £0.721655, while it is down by 0.13% to €0.852225.

“It certainly appears that the market was set up for a beat as we’re seeing USD on the backfoot and bond yields fall back since the figures came out,” said Owens. “We’ve had a predictably positive reaction from equity futures with growth and value stocks both taking something from the numbers, and the debate over whether this current bout of inflation is transitory will continue.”

Core inflation, which discounts energy and food, rose by 3% last month, 0.1% below its forecasted level.

Experts suggest that the core CPI measure is a better indicator since it doesn’t take into account the volatility of petrol and food prices.

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