With today’s U.S. CPI release, markets now have a bit more clarity on the inflation picture. The data came in slightly below expectations, leading to a modest depreciation in the U.S. dollar as traders reassess rate-cut probabilities.

Market Overview

• USD/CAD: Down 0.25%, reacting to softer CPI data.
• USD/MXN: Lower by 0.05%, following broader dollar weakness. 
• GBP/USD: Up 0.05%, showing a slight bid.
• EUR/USD: Initially spiked after the inflation number but has now come under what appears to be profit-taking and is down 0.30%.

U.S. CPI Data Recap

• Month-over-month CPI: 0.2% (vs. 0.3% expected)
• Core CPI (ex-food & energy)**: 0.2% (vs. 0.3% expected)
• Year-over-year CPI: 2.8% (vs. 2.9% expected, prior 3.0%)

Implications for the Federal Reserve & U.S. Dollar

• The lower-than-expected inflation print reinforces the possibility of further pressure from the Trump administration on Fed Chair Jerome Powell to cut interest rates.
• Trump has consistently advocated for lower rates, and today’s CPI miss could add to that narrative.
• The initial reaction saw a weaker dollar, though its movements remain somewhat contained.

Tariff Developments: More Complexity, More Uncertainty

• New U.S. tariffs on aluminum and steel took effect today.
• In response, the European Union has implemented reciprocal tariffs, matching U.S. measures dollar for dollar.
• The tariff situation remains highly fluid, with ongoing negotiations and new retaliatory actions making it difficult for markets to assess the full impact.
• Traders will be closely monitoring any official statements for further clarity.

Recession Concerns Persist

• Officials continue to comment on recession risks, adding to market uncertainty.
• While there is no consensus, concerns remain a key talking point in financial markets.

Looking Ahead

• Further commentary on tariffs will be key to market direction.
• Traders will watch for Fed statements, particularly any response to today’s CPI data.
• Ongoing recession speculation may drive risk sentiment in the coming sessions.

Conclusion

With inflation softening, the dollar weakening, and tariffs creating more uncertainty, markets are in a wait-and-see mode. While today’s CPI suggests less inflationary pressure, the big question remains: Will Powell yield to pressure and signal rate cuts? Markets will be watching closely for the next developments.