HiFX comments on US CPI figures
Andy Scott, associate director of FX advisory services at foreign currency specialists HiFX, has commented on the latest US CPI figures.
He said: “The US dollar strengthened following the release of January’s consumer price inflation, despite it showing prices falling by 0.1% compared to a year previously. The market was expecting the headline number to be negative due to the substantial drop in the price of oil that has prompted a number of central banks to cut interest rates recently, some of them to a negative.
“In the states, however, interest rates are expected to be increased this year with Janet Yellen saying this week that the Federal Reserve will at some point begin considering an increase in the target rate for the federal funds rate. This is due to core inflation, which excludes some volatile price items such as energy, running at 1.6%, close to their 2% target.
“With the pace of monthly jobs being created having increased in the last few months, the Fed expects wage growth to rise and push inflation back to their 2% target. This in turn would warrant interest rates to be risen from the near zero level they’ve been at for more than six years, making the dollar more attractive.
“We remain sceptical that the Fed will raise rates in June, as some have predicted and expect them to hold off until the back end of this year or even the beginning of 2016. We see this as weighing on the dollar which strengthened so much through the back end of last year and the beginning of this one, and sterling should benefit due to the strong economic landscape and the potential for a rate hike in the coming months.”