U.S. Dollar Drops, 2017 Down-Trend Continues As Inflation Disappoints

It was just a week ago that an abysmal NFP print helped to push the Dollar back into its 2017 down-trend. And throughout much of this week, the Dollar was offered lower as sellers re-gained control of near-term price action. But as we walked into CPI on Friday morning, a bit of strength had begun to show ahead of the print, opening the door to the possibility of a deeper move of USD-strength.

This morning’s inflation read for September came in at 2.2%, just below the expectation of 2.3%. Core CPI printed at 1.7% versus a 1.8% expectation; so we had a slight amount of disappointment there as well. Reading within the number, and contributing to this move of USD-weakness on this +2% CPI print is the fact that much of those price gains came from energy prices. The net response was re-ignition of USD weakness as the Dollar tilted down to test this week’s lows:

U.S. Dollar via ‘DXY’: Fresh Two Week Lows on Inflation Disappointment

Chart prepared by James Stanley

This near-term move of USD-weakness continues the longer-term bearish trend that’s held in the Dollar this year. Last week saw resistance set in a key area that runs from 94.08-94.30, and since then sellers have taken over.

U.S. Dollar via ‘DXY’ Daily: 2017 Down-Trend Continues After Last Week’s Resistance Test

Chart prepared by James Stanley

While September inflation came-in below expectations, this still echoed continuing improvement after the summer swoon in us inflation figures. After the Fed hiked rates in March, CPI began to fall dramatically from a February high of 2.7% to a June low of 1.6%. As worries began to mount around how long that theme of weaker price growth might continue, Fed Chair Janet Yellen continued to say that she thought that weakness was transitory and that inflation would continue to improve. In the FOMC minutes released earlier this week, we learned that this sentiment isn’t necessarily the predominant opinion at the Fed, as multiple board members voiced concern that the slowdown seen in inflation may be more than transitory.