US dollar under broad pressure
The inflation debate is raging in financial markets and we can see just how sensitive price action is after today’s US CPI data. The numbers were generally in line with forecasts and yet the dollar is down sharply across the board.
One example is USD/CAD, which is down nearly 40 pips and through 1.25 to the lowest in four days.
I’m surprised by the size of these moves but it speaks to the taper debate (Sept vs Dec) along with the pace of the taper once it starts. Ultimately though, it relates back to interest rates and if inflation comes down on its own, then there’s no need for the Fed to ever get above something like 1% on fed funds.
What’s interesting to me here is how substantial this move has been on an ‘in line’ print on CPI. That suggests that dollar longs are crowded, something Goldman Sachs recently warned about.