EM LATAM CREDIT: Brazil CB Comments on Impact of High Rates on Economy

Dovish repricing in the U.S. short end on the back of the slightly softer-than-expected round of core and supercore CPI data.

• The hawkish repricing that followed last week’s NFP release has been fully reversed, with Fed Funds once again pricing ~40bp of cuts through year-end.
• The hawkish move topped out at ~23.5bp of cuts on Monday.
• The next 25bp cut is fully discounted through the July FOMC vs. the September FOMC ahead of the CPI data.

• The softer data weighing on the greenback helps USDJPY extend its intra-day trend to print fresh session lows of 156.25. We noted 156.02 as the nearest support level, with the renewed optimism for equities potentially helping the pair off the lows in most recent trade.
• Boosted risk sentiment has helped the likes of AUD and NZD to outperform at the margin, rising over 0.5%, while GBP extends its post-UK CPI reversal to briefly print 1.2301, a prior breakdown point for the pair.
• The euro has relatively underperformed, only managing to print a 1.0354 high before sliding 30 pips, up just 0.2% on the session. This has weighed on EURGBP, which now returns to levels just above 0.84 from the prior 0.8463 highs.

Across core categories, we saw below-expected figures in the aggregates: core goods (0.05% vs 0.12% expected, 0.31% prior) and core services (0.27% vs 0.30% expected, 0.28% prior) were each a touch under analyst expectations. See table.

• OER and primary rents were on aggregate close to expected; lodging prices unexpectedly contracted, offset by above-expected used car and airfares (the latter was however flagged by the PPI release); auto insurance was basically in line.