Dollar push and pull yesterday but didn’t move a whole lot in the end

In case you missed the key headlines:

• US September CPI 2.4% y/y versus 2.3% expected
• US initial jobless claims 258K vs 230K estimate
• Fed’s Bostic says he’s open to pausing rate cut at the November meeting
• Fed’s Goolsbee: Inflation came in around expectations, improvement on housing
• Fed’s Williams: Expects that the economy will allow the Fed to cut further
• Fed’s Barkin: Inflation is headed in the right direction

The inflation numbers were higher than estimated while initial jobless claims jumped up as well, with little hurricane-related impact to note. The dollar posted gains on the back of that but it was all quickly erased. That before Bostic came along to pump the dollar up again before another round of late selling.

So, what gives?

If anything, perhaps it tells us that there is a relatively low bar for the Fed to cut rates in November next. A 50 bps move seems dead in the water now but unless every single data point says the Fed should not cut, chances are they will at least go with the flow still.

The consumer price inflation report wasn’t that ideal, sure. Food prices went up alongside shelter costs, with services inflation continuing to keep core prices sticky. As a result, core annual inflation ticked higher for the first time in one and a half years.

But prices for housing rent was the softest since June and energy costs also dipped by nearly 2% on the month. That is helping to keep the headline reading pinned down. At the balance, it points to some bumps in the road in the disinflation process – at least for now.

So, there’s still an argument to be made that 25 bps is the way to go.

As for the jobless claims, it will be an interesting spot to watch moving forward. As Greg pointed out, the largest increases in claims are not centered on those states impacted by the weather or strikes. Sure, there is some impact from the hurricane but we’ll get better clarity in the weeks ahead.

Fed funds futures are still pricing in ~86% odds of a 25 bps rate cut next month and that is little changed from before all the events yesterday. Bostic’s remarks shifted that a little but it didn’t last and that sentiment was also reflected in the dollar.

In short, it seems like the takeaway at the moment is that the bar is set very low for the Fed to go with a 25 bps rate cut. Meanwhile, the threshold for a pause is one that is quite high by the looks of it.

We’ll get a better sense from more Fed speak later today. But unless other policymakers start to echo Bostic’s stance, it will be tough to shift the prevailing narrative and what is priced in by markets now.

This article was written by Justin Low at www.forexlive.com.