Weak Inflation: Dollar drops to a one-month low

US Housing Starts exceed expectations, inflation stays flat

US Housing Starts exceed expectations, inflation stays flat

A weak July CPI reading has outweighed strong Housing Starts and this has lowered the dollar index last night. Muted inflation has led the market to speculate a lower chance of a Federal rate hike this year, sending the dollar index lower to around 94.73 area – the lowest level since Brexit’s voting. 

The US inflation rate, measured by headline CPI, remained flat as compared to a year ago. This is the lowest reading in five months. The core CPI which excludes food and energy, slipped from 2.3% to 2.2% a month ago. 

The US Housing Starts, on the other hand, unexpectedly rose to 1.21 million in July, beating the forecast of 1.18 million. This signals accelerating building activities across the board and will probably lead to a bounce in construction and housing markets should this momentum last in the months to come. 

Yen strengthened against USD 
Japanese yen strengthened against US dollar on Tuesday. This comes one day after the release of a disappointing 2Q GDP growth result which showed that ‘Abenomics’ failed to produce consistent economic growth despite  unprecedented levels of monetary easing. 

Nikkei Index was dragged down by a stronger yen, widening a two-day loss to 1.9%. USD/JPY dipped below the 100.00 mark overnight before coming back to 100.60 this morning. 

Weaknesses are showing across the rest of Asia’s markets too. Shanghai Composite ended 0.5% lower, ending a two-day rally with profit taking activities. Similarly, Singapore’s Straits Times Index closed 0.15% lower. 

UK inflation beats estimation, GBP rebounds
UK July CPI rose 0.6% y-o-y, beating forecast of 0.5%. This is the highest reading in over 20 months.  Strong inflation data led to a gain in sterling against USD and EU on Tuesday. 

Gold and silver prices traded higher due to a softer dollar index. Gold was traded above its 20 SMA at $1,346 whereas silver was slightly below 20 SMA at $19.94. Crude oil prices extended a four-day gain, with WTI September contract traded at a one-month high of $46.40 area. 

US Dollar Index Sep 2016

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