US Inflation influences Fed's monetary policy?

Will the US consumer price inflation figures for July support the dollar today, just like the British data propped up the pound sterling yesterday? A similar surprise as yesterday, the core rate came in at 1.2% year-on-year, would certainly have an effect on the USD exchange rates. 

"In the short run, however, inflation is likely to have a less direct impact on monetary policy in the US than in the UK. Things are quite different for the Fed. In its July statement, the US central bank no longer said that commodity prices had stabilised. Some market participants thought this was a sign that the Fed is increasingly worried about the inflation outlook", says Commerzbank. 

However, the Fed has linked the timing of the first rate hike above all to a further improvement on the labour market. Dennis Lockhart, the Atlanta Fed Governor, had explained in a widely noticed interview why the Fed pays so much attention to the labour market, While the inflation picture will probably remain diffuse in the coming months, growth is robust and the labour market is doing very well. 

Therefore, it makes sense to hike rates before inflation accelerates palpably. The Fed expects that a tighter labour market will ultimately lead to higher wages and, in turn, higher inflation. The labour market situation has already improved. 

That means that, from the Fed's vantage point, the decision for a September rate hike will not depend on today's inflation data, particularly in view of the promising price movements of the last few months. 

Today's second important event, the release of the minutes of the July FOMC meeting, will not yet give an answer to this question. That does not mean that the USD cannot benefit from the release. The markets are still not convinced of a rate hike in September.

"Perhaps the minutes will finally make the market realise that the Fed's baseline scenario foresees a rate hike in September and that only massive downside surprises will keep the Fed from implementing its plans. Judging from the Fed's signals up to now, however, inflation is unlikely to be the tipping factor", added Commerzbank.