American inflation, headline and core, on 12 August was as expected, generating relatively little volatility as markets are seasonally less active around the middle of August. This article summarises the latest news affecting the US dollar, then looks briefly at the charts of cable and AUDUSD. In July, American annual headline inflation declined slightly to 3.4% as widely expected: The lower uptick in fuel prices compared to June was possibly surprising, but there wasn't a big difference between the two months.
Meanwhile, most other major components of headline inflation, such as rents/shelter and food, were the same or nearly the same as the previous month. With all of the annual and monthly releases for both core and non-core meeting expectations, there was much lower volatility on the whole compared to the average around inflation, compounded by the release being around the middle of August when markets are usually less active. The combination of a weaker NFP and lower inflation for July means that the more hawkish expectations for the Fed have moved out of focus for now.
With the job market possibly slowing down or at least certainly not heating up in recent months and inflation declining for two consecutive months while the annual headline figure remains below the base rate of interest, there's no immediate pressure on the Fed to hike in September. As of 13 August, a moderately sized majority of participants, around 64%, expects another hold by the Fed on 16 September according to CME FedWatch. A slight majority of around 52% expects at least one hike by 28 October and the probability of a hold all the way into 2027 has risen but remains only around 28%.
Traders might now look ahead to the release of the Fed's minutes on 19 August. However, it's unlikely that these will bring significant new information since the meeting occurred before the weaker NFP and inflation over the last week. Barring major developments in the Gulf or a clear change in sentiment overall, most major markets are likely to remain in summer mode with relatively low activity and volatility for the next few days.
Slightly better British GDP than expected on 13 August has helped the cable to hover close to familiar areas slightly below $1.35. Although the latest NFP was overall negative, American inflation, as expected on 12 August, didn't produce much movement on the chart. With both the Fed and the BoE likely to remain around 3.5-3.75% for the near future, there's no obvious input from monetary policy for now; traders will probably have to wait until early next month for significantly clearer expectations for the next moves by rates. $1.35 remains a likely area of resistance, which the price is currently testing.
However, a clear breakout around the middle of August seems very unlikely unless there's surprising news. Volatility based on ATR is close to the minimum while volume remains seasonally low, but the slow stochastic signals are overbought. If there's a break above $1.35 further ahead, the next target might be around May's highs near $1.36.
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