We have been monitoring closely the developments with inflation in the US as well as the progress in employment figures. Those are the major criteria the Fed is looking at as it considers its monetary policy - mainly if the economy needs more stimulus (QE3) or its time to pull back the extra loose monetary policy and start preparing the markets for an exit strategy.

Well, today we had two fundamental reports that give us some more data to consider.

Most importantly we had January's consumer price data. Overall, prices did accelerate during the month, with CPI up 0.4%, compared to an expected 0.3% gain.

width=479

Above is a look at the headline monthly inflation rate in graph form.

Core prices, which exclude energy and food, climbed 0.2%, higher than expected the expected 0.1%, and the strongest reading since October 2009.

That could mean that the dis-inflationary trend in core inflation may have bottomed.

The figure that the Fed focuses on is the annual core inflation rate and that rate rose to 1.0% from 0.8%, also higher than expected. Still, the Fed would like to see inflation close to 1.6% - 2% level for a healthy level of inflation, and therefore, even with the increase its not enough to sway the minds of policy makers just yet and supports the Fed's view that inflation remains to low.

From yesterday's Fed Minutes: Despite further increases in commodity prices, measures of underlying inflation remained subdued and longer-run inflation expectations were stable.

That's a pretty stark contrast from other central banks - like ECB and Bank of England more recently - facing inflation that is above their targets and has put them on guard.

The consumer price report comes one day after producer prices showed a strong move up in inflation, hitting a 2-year high. The core monthly PPI rate was up 0.5% (highest since Oct. 2008).

The USD was mainly softer after the release, as it was accompanied by a stronger than expected increase in jobless claims (+25K to 410K) last week.

width=480

That reflects the choppy conditions of the US labor market, and weighed on the greenback a bit.