Another factor weighing on the US dollar was a weaker than expected University of Michigan 5-year inflation expectations survey, which fell to a one year low of 2.8%, suggesting that we might be close to a near term peak for inflation, while a sharp drop in services PMI this week could prompt some concerns about an economic softening. Louis Fed President James Bullard pushed back on that, saying that 75bps remained their favoured option, prompting a modest pullback in the US dollar which briefly hit a 20 year earlier this month. An aggressive 100bps is by no means off the table, but it became less probable after two of the most hawkish Fed members, Christopher Waller, and St. Nonetheless, there does appear to be a concern that the Fed doesn’t want to overdo it even if the unexpectedly sharp increase in headline CPI did raise concerns that the FOMC might move by 100bps this week. For now, we can expect to see the Fed lean into the narrative that they need to get inflation under control even if it pushes headline unemployment quite a bit higher. This jump once again highlights how far behind the curve the US central bank is, however, we are now starting to see signs that the US economy is starting to slow sharply in certain areas.

The most recent US inflation numbers jumped again in June to 9.1% on the CPI measure, although core prices did slip back.

Federal Reserve rate meeting – 27/07 – its certain that the Federal Reserve will be hiking rates again this week by another 75bps, with the only question being what comes in September, and whether we see 50bps or another 75bps.

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