Inflation data in the US show its decline

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According to data published on 10 August 2022 by the US Department of Labor, there was a decrease in the inflation rate in the United States (US) in July 2022, to 8.5% year-on-year compared to 9.1%, which was reported for June 2022. This is a surprising turn because analysts and financial strategists expected its growth or stagflation. Recently, investors and traders have begun to speculate regarding the exchange value of the US dollar (USD) and whether it will be necessary for the Federal Reserve System (Fed) to continue raising interest rates as announced.

On 11 August, at 7:58 am CET, according to the US Dollar Currency Index (DXY), we saw the USD at a price level of 105.39 with a daily strengthening of +0.18%. At the time mentioned, the global currency pair of the single European currency Euro (EUR) and the USD traded on the international foreign exchange – Forex market at US$ 1.0278 per EUR, with a daily decrease of the EUR by -0.231% against the USD. However, according to analysts, after inflation data were revealed in the US and taking into account that the USD would no longer need to be supported by interest rate increases by the Fed, the USD recorded a stronger decline against the EUR and especially against the Japanese yen (JPY).

Analysts at Standard Chartered said the drop in the USD was due to the change in investor attitudes towards riskier assets – except the Japanese yen (JPY), which they said was more yield orientated. On 11 July at 8:12 am CET, the USD strengthened against both the EUR and the JPY and the USD/JPY currency pair was trading on the Forex market at JPY 133.08 per USD with the USD up +0.15% against the JPY so far. According to the Forex analysts, “the surprise downward (inflation) move takes out much of the fear that the market had of a 75bps Fed hike or even inter-meeting moves”. Also, if price increases, Fed will not have keep increasing interest rates to support the USD.

In July this year – compared to June – US consumer prices stayed relatively unchanged when they rose just 1.3% month-on-month. July’s data were lower than expected due to a sharp drop in the price of gasoline, which led markets to refocus on hopes that inflation was peaking. Data in the Dow Jones survey revealed that economists had expected inflation to rise by 8.7% year-on-year and by 0.2% month-on-month, CNBC reported, so these current results are such a surprise. On a month-to-month basis, energy prices collectively fell by 4.6%, although electricity, for example, rose in price by 1.6%. For gasoline, the drop was even 7.7%. On the other hand, food prices rose by 1.1% and housing costs by 0.5%, and in a year-on-year comparison, food prices rose by 10.9% and electricity by 15.2%. However, US consumer prices may continue to rise due to a number of factors, notably unstable global supply chains, massive government support at the start of the covid-19 pandemic, and Russia’s invasion of Ukraine.

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