Inflation data on Wednesday might only have been a precursor for further Dollar weakness – Commerzbank

After the US inflation data surprised so much on Wednesday the market is likely to pay even closer attention to the price and economic data. Antje Praefcke, FX Analyst at Commerzbank, analyzes USD outlook.

Only the precursor?

The inflation data on Wednesday might only have been a precursor for further Dollar weakness. Just imagine what would happen if the next price data surprises to the downside while the economic data also illustrates increasingly clearly that the past rate hikes are having a dampening effect on the US economy – albeit with the expected delay.

In case of an increasingly rapid fall in inflation and weakening economic data the market might increasingly rely on key rates not remaining at high levels for a long time whereas rate cuts before the end of the year are becoming increasingly likely. That would cause the USD to ease further. 

It makes sense in my view to also pay attention to second-tier data now, such as US import prices and the US Michigan Index today. Simply in an effort not to miss the trigger for the next downward push in the Dollar.