US inflation came in softer than consensus and notably below our own expectation of a 0.4% month‑on‑month core reading. However, yesterday’s price action actually reinforced our short‑term positive bias on the dollar: despite the soft CPI print, Fed pricing barely moved, and the dollar quickly re‑appreciated, ING's FX analyst Francesco Pesole notes.

Fed pricing steady as markets shrug off soft inflation

"Part of this may reflect market reluctance to read too much into the CPI data, given lingering shutdown‑related distortions. But it also signals that the perceived risk to the Fed’s independence is continuing to fade – helped by a sense that the criminal investigation into Chair Powell may not progress much further, and by pushback from some GOP lawmakers. We still see a reasonable chance the dollar ultimately emerges stronger from this episode, as Powell could be viewed as more resolutely hawkish in an effort to reinforce Fed independence."

"At the same time, the main takeaway from yesterday’s CPI is the persistent softness in goods prices, underscoring again how muted the tariff impact on inflation has been. Many tariff‑exposed categories remained weak, including appliances (‑4.3% MoM), furniture (‑0.4%), new vehicles (0.0%), and video and audio equipment (‑0.4%). This is a striking pattern and suggests US retailers are continuing to compress margins. All in all, it strengthens our conviction in a March Fed cut, even if markets may take time to fully embrace that view."

"Today’s attention turns to November PPI (core expected at 0.2% MoM) and retail sales, which should be relatively firm. A busy slate of Fed speakers – Paulson, Miran, Kashkari, Bostic, and Williams – will also be closely watched for any subtle hawkish tilt in support of Powell and the institution’s independence. We may also get the Supreme Court ruling on tariffs today, widely expected to be unfavourable. If so, expect substantial noise from the Trump administration, but markets are unlikely to be surprised. Our base case is for a modestly positive dollar reaction."