US: Return of inflation will be $ positive but still some nervousness around - ING

Viraj Patel, Research Analyst at ING suggests that this week may see the rumblings of US inflationary pressures return – with producer and consumer prices (Thu/Fri) expected to bounce back strongly.

Key Quotes

“The number one question for bond markets right now is whether missing US inflation over the past quarter has been transitory or transitional; robust signs of underlying inflationary pressures in the US – as also observed in the latest wage growth data – will undoubtedly be a wake-up call to bond markets that currently see inflation as being more than just on a summer holiday.”

“In theory, the return of a steepening bias in the US yield curve should be positive for the $ against rate-sensitive currencies (namely JPY, AUD and NZD). Yet, whether intentional or not, we note that Making Everyone else Great Again (MEGA) has been the White House’s influence on FX markets; while part of the USD weakness can be ascribed to a weaker economic outlook, we note that uncertainty over the administration’s ability to push through its pro-growth policy agenda, as well as question marks over the US political backdrop, means that we’re likely to see some general dollar nervousness in the near-term. Indeed, it’ll take more than a few solid data points to overcome this headwind.”