Gold rises after unexpected drop in US inflation

17 Sep 2015 | Author: | No comments yet »

As Fed meets, US inflation falls.

While economists and traders are split on whether the US central bank will lift rates on Thursday — 47 per cent of economists surveyed by the Financial Times on Tuesday said they expected the Fed to raise rates — lacklustre inflation data released on Wednesday may sway policymakers, Eric Platt writes in New York.The dollar fell to a three-week low against many of its peers Wednesday, as weaker-than-expected U.S. economic data bolstered the case for the Federal Reserve to hold off from announcing a rate increase at the conclusion of its monetary policy meeting on Thursday.Washington: US consumer prices fell slightly in August, dragged lower by tumbling gasoline prices, the government reported Wednesday ahead of a key Federal Reserve meeting on increasing interest rates. The data showed a 0.1 per cent decline in consumer prices in August from a month earlier, in line with economist forecasts and the first month-on-month slide in seven months.

The Wall Street Journal Dollar Index, which gauges the dollar against a basket of 16 currencies, was recently down 0.4% at 87.94, the weakest level since Aug. 25. The consumer-price index, which measures what Americans pay for everything from groceries to medication, dropped last month for the first time since January, data from the Labor Department showed. Subdued inflation pressures underscore that U.S. and global economies continue to underperform, giving pause to Fed officials as they debate whether now is the time to raise interest rates. The Fed has signalled it wants to raise zero-level interest rates this year, but speculation is divided whether it will take that step at this week’s meeting.

Below, a look at some of the commentary hitting trading desks today: Some of the services softness is likely to be transitory, in our view, particularly the declines in prices of airfares and lodging away from home. Lower interest rates for longer are bad news for the dollar, as increased borrowing costs make the currency less attractive to yield-seeking investors.

Its preferred inflation measure, the personal consumption expenditures price index, was up just 0.3 per cent in July from a year ago, and core PCE 1.2 per cent. But Fed officials have signalled they would not wait for inflation to near their target to raise the benchmark federal funds rate in the first hike in nine years.

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