Data Watch | US Inflation & the USD

Last week delivered a key batch of US inflation data, including Core CPI, headline CPI, and Core PPI. Together, these releases help markets assess whether inflation pressures are easing fast enough for the Federal Reserve to consider policy changes.

Last week’s US inflation data showed progress — but not enough to change the policy outlook.

Key releases:

• Core CPI m/m: 0.2% (vs 0.3% forecast)
• CPI m/m: 0.3% (in line)
• CPI y/y: 2.7% (unchanged)
• Core PPI m/m: firm

What this tells us:

Underlying inflation cooled slightly, but broader price pressures remain sticky. Annual inflation is still above the Fed’s long-run comfort zone, and producer prices suggest cost pressures haven’t fully eased.

Policy backdrop:

Markets continue to expect the Federal Reserve to hold the target rate range at 3.50–3.75% at its 28 January meeting.

USD reaction:

With policy expectations unchanged, the US Dollar was steady to slightly firmer. The data reduced fears of renewed inflation pressure, but didn’t bring forward expectations for rate cuts.

Key takeaway:

Markets move most when the story changes. Last week’s data told markets the story hasn’t changed yet.

This is why last week’s inflation data mattered: it reinforced expectations, kept volatility contained, and left the USD largely range-bound.

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