Traders fall out of love with the dollar

• All the fun of the fair as US CPI beats expectations
• But CPI still below Fed target
• Greenback rally turns to ashes

US inflation figures have proven to be the key point of the week, but perhaps not in the way many people intended. It had been widely expected that CPI for January would come in ahead of expectations, as it duly did, but we did not see a the bounce in the dollar that might have been thought the natural reaction. While inflation did jump on both the year-on-year and month-on-month figures, they were still in line with last month’s and are both down on a year ago (when year-on-year CPI ran at 2.3%). So the figure is still, even now, below the Fed’s target of 2%. It’s too early to start pencilling more rate hikes from the new Powell-era Fed.

Price is sentiment, as the saying goes, and it is clear that the dollar is still immensely unloved. Indeed, the failure to push on from the 90 level for the USD index, and the sharp drop in the wake of the CPI print, raises the prospect of yet another major leg lower for the greenback. As a result, the trades of 2017 that worked so well, i.e. buying US equities over their European counterparts, and continuing to push the euro and sterling higher, remain the way to go for those looking for sustained momentum. If fears about a US current account deficit gather pace, there may be an awful lot more downside for the US dollar.

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