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investingLive Americas FX news wrap 12 Aug: CPI rise does not scare the market. | investingLive

The July 2025 U.S. CPI report showed headline inflation rising 0.2% month-over-month, matching expectations, and 2.7% year-over-year, slightly below the 2.8% forecast. Core CPI, which excludes food and energy, increased 0.3% on the month—the largest gain in six months—and 3.1% year-over-year, above expectations and the highest since February. The increase was driven largely by higher services costs, particularly in housing, medical care, airfare, and dental services, while energy prices, especially gasoline, fell and food prices were mostly flat, helping to moderate overall inflation. Analysts noted that the impact of tariffs on inflation remains limited, with only modest rebounds in goods prices. Financial markets reacted positively to the data, with major equity indexes advancing and traders increasing bets on a September Fed rate cut, currently priced with roughly 90% odds. Overall, the report suggests headline inflation remains contained, but persistent strength in services inflation may keep the Fed cautious even as it weighs near-term easing.

The data did not discourage the market from their expectations of a September rate cut. Stocks moved higher. Both the S&P and the NASDAQ indices traded to new all-time highs and closed at new record levels. The Russell 2000 rose by nearly 3%. A snapshot of the closing levels shows:

  • Dow industrial average up 1.10%
  • S&P index up 1.13%
  • NASDAQ index up 1.39%
  • Russell 2000 up 2.99%

US yields were mixed with the shorter end lower in the longer end higher (steeper yield curve) congruent with a Fed ease:

  • 2-year yield 3.732%, -2.1 basis points
  • 5 year yield 3.820%, -1.0 basis points
  • 10 year yield 4.288%, +1.6 basis points
  • 30 year yield 4.876%, +3.6 basis points

Treasury Secretary Bessent spoke later the day on topics. When asked about Fed nominee Miran, he said that he hopes the will be confirmed by the Senate for a Federal Reserve seat before the September meeting and urged the Fed to consider a 50 basis point rate cut next month. He noted that Trump is casting a wide net for the Fed chair, and keeping an open mind for the Fed governor opening. Bessent also said he expects to meet with Chinese officials again in the next two to three months, adding that Chinese tariffs will remain in place until there is sustained progress—potentially months or even a year— and also on reducing fentanyl flows.

Speaking of the Fed Nominee Miran, he did speak on CNBC today and said he was pleased with the latest CPI data, noting there is no evidence of tariff-driven inflation and that recent price increases, such as in U.S. cars and airfares, are unrelated to tariffs. He suggested illegal immigration may be contributing to higher rents and said service-sector disinflation is possible as immigration policy is addressed. He explained that CPI data is generally not revised and proposed exploring incentive schemes to boost survey response rates. While unable to comment directly on Fed policy, Miran is considered a dove who supports immediate rate cuts. He expressed confidence that tariffs will primarily be borne by the targeted countries and noted the burden falls on the more inflexible party, which can lead to shifts in goods and producers. Miran, nominated to fill the Fed Board seat vacated by Adriana Kugler on August 8, said his confirmation timing is up to the Senate.

In other current Fed member spoke today and both were not necessarily leaning toward or a rate cut:

  • Richmond Fed Pres. Barkin said the balance between inflation and unemployment remains unclear and noted that Fed policy is well positioned to adjust as economic visibility improves. He cautioned that a significant pullback in consumer spending would be needed for the economy to falter, which seems unlikely given low unemployment and steady wage gains. While spending has softened, shifts in consumer behavior may be helping to limit the inflationary impact of tariffs. He added that employment could weaken if consumers cut back, though large layoffs are expected to be avoided, and any rise in unemployment may be smaller than anticipated due to reduced immigration and slower labor supply growth. His remarks leaned modestly hawkish, highlighting the resilience of the labor market and consumer spending.
  • Kansas City Fed Pres. Schmid said retaining a modestly restrictive policy stance is appropriate for now and supports a patient approach to changing the Fed’s policy rate. While the rate is near neutral, he stressed that inflation remains too high and that the limited inflationary impact of tariffs is a reason to hold policy steady rather than cut rates. He acknowledged the uncertainty around tariffs’ full effects in the coming months but said he would adjust his views if there were clear signs of significant weakening in demand growth. His remarks carried a hawkish tilt, signaling a preference for keeping policy tight until inflation risks are better contained.

The newly appointed BLS commisioner EJ Antoni spoke for the first time on FoxBusiness and argued that the monthly jobs report should be suspended, claiming its methodology, economic modeling, and assumptions are fundamentally flawed. He said the current approach leaves businesses uncertain about how many jobs are truly being added or lost, making it difficult to anticipate Fed policy moves. Until these issues are fixed, he suggested halting the monthly release and relying instead on the more accurate, though less timely, quarterly data.

Later in the day, the White House said that the jobs report will be reported monthly, putting the brakes on Antoni’s inaugural comments.

The US federal budget deficit ballooned to $-291 billion, greater than the -$250 billion expected. No comments from the White House regard to that despite the $29.6 billion of tariff revenue collected in the month of July.

Crude oil futures settled lower, below its 100-hour moving average (at $64.82) and the low of a swing area at $63.61. The current price is trading at $63.07. Staying below the 100 hour moving average would be more bearish.

Bitcoin is back above $120,000 at $120,216. That is near the high for today at $120,304.

The US dollar is closing lower versus all the major currencies:

  • EUR -0.51%
  • JPY -0.20%
  • GBP -0.53%
  • CHF -0.69%
  • CAD -0.04%
  • AUD -0.26%
  • NZD -0.29%

The AUDUSD was lower at the start of the US session after the RBA cut rates by 25 basis point. However, the price snapped back with the overall dollar selling and trading in the US session.