"the U.S. Dollar Index (DXY), which tracks the dollar's performance against a basket of six major currencies, is hovering near a three-day high around 98.00. This signals a notable level of investor confidence in the dollar's short-term strength. That confidence was reinforced by U.S. Consumer Price Index (CPI) data, which aligned with annual expectations and came in slightly above forecasts every month. This suggests that inflationary pressures remain in play, although not at levels severe enough to fully unsettle the Federal Reserve."
"On the other hand, U.S. jobless claims came in much higher than expected, highlighting a clear weakening in the labor market compared to previous months. In my view, this contrast-between relatively stable inflation and a softening job market-brings the Fed back to its classic dilemma: how to balance its dual mandate of controlling prices on the one hand, and sustaining employment and growth on the other. This dilemma makes monetary policy decisions over the coming period far more delicate and complex."
"This dilemma makes monetary policy decisions over the coming period far more delicate and complex. Markets are still pricing in a 92% probability of a modest 25-basis-point rate cut at the upcoming meeting, versus just 8% for a more aggressive 50-basis-point move. In my opinion, while inflation data were not particularly surprising, labor market weakness could give the Fed more room to lean toward bolder action if negative signals persist in the weeks ahead."
USD/JPY rose about 0.3% toward the 148.00 level amid broad U.S. dollar strength ahead of August inflation data. The U.S. Dollar Index hovered near a three-day high around 98.00, reflecting investor confidence. U.S. CPI aligned with annual expectations and was slightly above monthly forecasts, indicating persistent but not runaway inflationary pressure. U.S. jobless claims surprised materially higher, signaling labor-market softening. The contrast between stable inflation and weakening employment complicates the Federal Reserve's dual mandate trade-offs. Markets price a high probability of a 25-basis-point cut, though labor weakness could prompt bolder action if it persists.
Read at London Business News | Londonlovesbusiness.com
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