NEWS / Monetary Policy

Dollar wanes on profit taking, further inflation data awaited

June 14th - Profit taking seems to have been the dominant theme overnight with traders cashing in at least some of the dollar??™s recent gains. However, with further US inflation indicators due both today with the CPI data and later in the week with the Michigan sentiment reading, there??™s every chance that further upside may be seen for the greenback in due course. There??™s little doubt that today??™s CPI reading will keep year-on-year inflation above the Fed??™s comfort zone but anything over 0.3% for the month could easily initiate another run of buying for the dollar as there will be little doubt that the hawkish stance over rates will have to last well into the year as a result. The beige book however may offer some interesting insight later in the session, depending on just how factors such as high fuel prices are impacting the economy. Obviously there??™s some positive sentiment available in the short term with crude below $70 and an expectation for inventories to remain robust but the FOMC could be left with a difficult choice. If business confidence is starting to ebb, any further extended run of rate hikes may prevent runaway inflation but will potentially prove damaging for the economy as a whole, especially with a stronger dollar doing little to close the trade deficit??¦

Andy Cottrill and Enis Mehmet