Dollar Falls as Inflation softens

• US headline inflation has fallen to 3.2% and underlying prices dropped to 4%.
• Good news for consumers is also good news for stocks and Gold, which may continue rising.
• The US Dollar will likely remain under pressure as markets price out a hike. 

Headline inflation remained flat MoM in October, below the 0.1% expected, and it came out at 3.2% YoY, also a miss of the same scale. Core CPI, which excludes volatile food and energy costs, also fell short of estimates: 0.2% MoM and 4% YoY. That is good news for consumers and also for investors. The CPI report joins the Nonfarm Payrolls (NFP) report, which showed an increase of only 150,000 jobs in October. That was below the pre-pandemic norm of just under 200,000, but still pointing to growth. 

A soft-landing scenario is perfect for stocks, as companies benefit from both lower rates but healthy consumer demand. For the US Dollar, the data is adverse – expectations for lower borrowing costs weigh on the Greenback, while the currency does not benefit from safe-haven flows. A recession is not on the horizon. 

The lack of deflation – contrary to the picture seen in China ~ is a positive sign for the US economy. Gold price (XAU/USD) rose sharply as the US Consumer Price Index (CPI) data for October has turned out gradually softer than expectations. Monthly headline CPI remained stagnant against expectations of a 0.1% rise and a 0.4% growth in September. In the same timeframe, the core inflation rose by 0.2%, slower than expectations and the former reading of 0.3%. On an annual basis, the headline inflation softened to 3.2% versus. the consensus of 3.3% and a 3.7% reading in September. The core CPI slowed nominally to 4.0% against the estimates and the prior reading of 4.0%.

The precious metal jumps while the US Dollar plunges as the Federal Reserve (Fed) may deliver a neutral monetary policy outlook. However, the Fed is committed to bringing down inflation to 2% in a timely manner and it won’t hesitate to raise rates further if it thinks inflation has become entrenched. 

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.