US Inflation worries persist despite weak labour market
USD posted a weekly gain as market participants reassess the likelihood of the Federal Reserve tapering bond purchases this year. USD came under pressure earlier after jobs data for August showed that jobs growth slowed, while wage inflation rose more than expected.
However, many Fed officials last week said that a slowdown in job growth wouldn't necessarily throw the central bank's plan to cut asset purchases this year off track, even after the August job data report fell well short of expectations.
Further, the data on Friday showed that U.S. producer prices increased solidly in August, indicating that high inflation is likely to persist for a while, with supply chains remaining tight as the COVID-19 pandemic drags on, driving UST 10yr yield higher.
On Friday, Cleveland Federal Reserve Bank President Loretta Mester reiterated her stance from late August that she would like tapering to begin this year.
On Thursday, the European Central Bank maintained a dovish tone and offered no major surprises but indicated that it would trim emergency bond purchases over the coming quarter.
INR fell on risk off trade
INR ended lower last week in risk-off trade as worries of slowing growth crept in after Goldman Sachs cut its US GDP outlook for the second time in a month following the weaker than forecast US jobs report on Friday
However, the expectation of steady retail inflation has given some support to INR. The inflation in August is likely to remain within the Reserve Bank of India’s comfort zone for a second straight month.
We would love to hear back from you. Please Click here to share your valuable feedback