Fed In Focus Following Record Inflation Fall

April CPI Plunges

The weight of negative US data flooding the wires increased again this week. The Consumer Price Inflation readings for April highlighted severe weakness.

Headline CPI fell 0.8% over the month, dropping from the prior month’s -0.4% reading and falling below the -0.7% reading projected. Core CPI was also down over the month and fell from the prior month’s -0.1% reading. The figure plunged below the expected -0.2% reading to print -0.4% on the month.

Record Inflationary Fall

These readings mark the worst set of monthly inflation decreases since those seen during the peak of the global financial crisis in 2008. These have added to the string of dismal data released recently.

Q1 US growth was seen at -4.8%, marking its fastest contraction since the Great Recession also. Last week, the April jobs report noted the largest one-month loss in jobs (-20.5 million) on record. The unemployment rate jumped to 14.7%, last seen in 1933.

Energy Price Falls Offset Spike in Food Prices

One of the main drivers of the fall in inflation last month was the continued decline in oil prices. Gasoline prices were seen lower by 20.6%, the largest fall since November 2008.

The fall in gasoline prices, as a result of the collapse in the crude oil market, helped to offset the spike in food prices. Prices rose by 1.5%, the sharpest monthly increase since January 1990.

Indeed, the prices for food to be consumed at home spiked by 2.6%, a rise not seen since February 1974.

Will Fed Go Negative on Rates?

With negative data continuing to pile up, traders are now starting to adjust their views on the projected recovery of the US economy. Although lock-downs are starting to ease in parts of the country, the unexpectedly large dip in many key readings suggests that the recovery is going to be slower than first thought.

Indeed, with risks remaining on the horizon (such as the potential for a second spike in COVID-19 infections which could lead to the reintroduction of lock-down measures) there is a great deal of expectation that the Fed will be forced to intervene further. This leads to speculation as to whether the Fed will move into negative rates territory.

Fed’s Powell To Speak Today

Fed Chairman Powell is due to speak today and will give his latest economic outlook. He will also address monetary policy. Traders will be keen to hear the chairman speak given the built-up speculation on rates. Any clear push-back against the prospect of negative rates could fuel a dollar rally.

USDCHF Threatening to Break Lower?

USDCHF continues to trade within the descending triangle pattern which has framed price action over the last few months.

Price has recently been capped once again by the triangle pattern top, along with the swing highs creating resistance at the .9786 level. While below here, focus is on a further test of the .9599 level. If broken, it will put focus on a test of the .9503 level next.