USD Off Tops Despite Higher-Than Expected Inflation

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After another failure to break the 100.00 round mark, the USD index retreated into negative territory in the daily charts in a knee-jerk reaction to a fresh economic report out of the United States. The data showed that consumer prices surged 8.5% year-over-year in March versus 8.4% expected, up from February's rate of 7.9%.  The monthly rate of inflation came in at 1.2%. 

However, USD bulls were upset by the so-called core CPI that arrived at 1.2%, at 6.5% year-over-year and 0.3% month-over-month, both below expectations for 6.6% and 0.5%, respectively. A slower growth rate in the core CPI reading could be an early sign that inflation may be peaking, suggesting the Federal Reserve could take a more measured approach towards tightening in the months ahead should price growth continue to abate. 

Against this backdrop, the greenback came off tops to settle around 99.85 in early North American deals after peaking at fresh two-year highs around 100.23 earlier in the day. Still, the overall inflation so far comes in line with the Fed’s more hawkish trajectory, with expectations for a 50bp rate hike in Mat staying elevated. 

The dollar’s pullback is likely to be limited, especially as risk-off tone continues to dominate global financial markets amid rising geopolitical tensions surrounding Ukraine. Also, the buck remains supported by rising US Treasury yields amid the ongoing sell-off in the bond market.

As such, EURUSD came off local lows around 1.0850 to turn positive on the day. However, the pair is yet to regain the 1.0900 figure as the euro remains on the defensive, holding just above the 1.0800 figure that capped losses last month. On the upside, the key immediate target arrives at 1.0990 where the 20-DMA lies.