Consumer price inflation exceeded consensus expectations again in the US. The upside surprise drove the US Dollar (USD) higher. Economists at TD Securities analyze Greenback’s outlook.

First Fed cut expected in May

Consumer price inflation exceeded consensus expectations again, with the headline CPI advancing 0.3% MoM in January. The focus of the report was centered on the core segment where price gains accelerated to an above-consensus 0.4% MoM, as strength in the services segment more than offset still-persistent goods deflation.

We continue to expect the first Fed cut in May and the USD moving lower on Fed cuts is more a Q2 trade now.

The world outside the US is seeing more growth upgrades than downgrades which makes it less of a US exceptionalism trade and more of a US soft landing trade which is good for the MXN and CAD vs peers.