The USD has traded mixed since the March 16 FOMC statement and subsequent dovish speech from Yellen. Overall, these dovish Fed communications have increased the time expected before the next rate hike and therefore have pushed the dollar lower.
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During April, the USD traded mixed across the board, with further weakness seen against the yen but overall most major pairs remained within a range. The USD is likely to trade in a mixed or neutral fashion until we see a confirmed improvement in underlying inflation.
CPI for March slightly missed estimates with core dropping to 2.2% y/y from a prior of 2.3%. For the month, core was 0.1% versus 0.2% expected.
Headline inflation also dropped from prior and missed estimates at 0.9% y/y. Although this was not a terrible result, and core CPI y/y still remains above 2%, the Fed would need to see a sustained move higher before being more comfortable about signalling the next rate hike.
Personal Consumption Expenditure, the Fed’s primary gauge of actual inflation, is due to be released on April 29.
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The March employment report, released April 1, beat estimates on the headline NFP employment change, with 215,000 jobs added, above consensus of 205,000.
Average hourly earnings also surprised to the upside, printing at 0.3%, above expectations of 0.2% and February’s disappointing -0.1%.
The unemployment rate however missed expectations at 5.0%, above expectations of remaining unchanged at 4.9%.
Overall, US employment data continues to suggest a strong and healthy labour market which continues to support further rate hikes by the Fed.
Furthermore, improvements in average hourly earnings will be supportive of Fed inflation expectations, which currently remain a primary concern and obstacle to raising rates.
The USD remains a bullish currency in the longer-term, however the dovish Fed communications in late March have taken the edge off its bullishness.
The negative effects from those events has now dissipated and we view sentiment on the greenback as neutral for the time being, which means it can be used sell against strong currencies and buy against weak currencies.