US dollar drops and then rebounds on CPI report. What's next

<p>The US CPI report was largely in line with expectations as both the core and headline m/m readings were at +0.2% to match the consenus. However, digging deeper, both were slightly soft at +0.16% and +0.17% unrounded while the year-over-year readings were one-tick below estimates.</p><p>The initial reaction was US dollar selling as USD/JPY fell 50 pips to a session low of 143.31. There were similar moves elsewhere, albeit mostly smaller.</p><p>After the big move and then retracement, there is some dollar selling creeping back in outside of USD/JPY (which is positively correlated with risk). A good example is AUD/USD, which is beginning to tick higher again.</p><p>I think the kneejerk reaction was the right one and we eventually retest some of those levels. The details of the CPI report are light and a September hike is off the table barring an enormous surprise higher in Sept CPI along with a strong non-farm payrolls report. Beyond that, there's good reason to think the Fed is done.</p>

This article was written by Adam Button at www.forexlive.com.