New York FX market-dollar plummets, US CPI hints at slowing pace of interest rate hikes

 

New York FX market-dollar plummets, US CPI hints at slowing pace of interest rate hikes
New York FX market-dollar plummets, US CPI hints at slowing pace of interest rate hikes
Reuters |
November 11, 2022 07:46
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New York FX market-dollar plummets, US CPI hints at slowing pace of interest rate hikes
NEW YORK (Reuters) – The dollar plummeted in the New York forex market. The U.S. consumer price index (CPI) fell short of market expectations in October, signaling a slowdown in underlying inflation, prompting widespread speculation that the Federal Reserve (Fed) would slow its pace of rate hikes.

Major currencies surged against the dollar, and the yen once recorded its highest gain since 2008, and the pound since 1985.

U.S. Treasury yields also plunged, with benchmark 10-year bond yields set to see their biggest drop since March 2009.

Stock markets surged, with the Nasdaq Composite up more than 7%.

But Cleveland Federal Reserve Bank President Loretta Mester said on Monday that there were signs that inflation was slowing, but that monetary policy needed to be more restrictive to meet its inflation target.

Lower-than-expected inflation has helped the market, said Art Hogan, chief market strategist at B. Riley Wealth & Co. He said all of the CPI readings showed improvement and were heading in the right direction, “stopping the Fed from becoming more hawkish.”

The U.S. Labor Department released a seasonally adjusted consumer price index of 7.7% in October, down from 8.2% in September. 8.0%).

New York FX market-dollar plummets, US CPI hints at slowing pace of interest rate hikes
New York FX market-dollar plummets, US CPI hints at slowing pace of interest rate hikes
Reuters |
November 11, 2022 07:46
be the first to comment
New York FX market-dollar plummets, US CPI hints at slowing pace of interest rate hikes
NEW YORK (Reuters) – The dollar plummeted in the New York forex market. The U.S. consumer price index (CPI) fell short of market expectations in October, signaling a slowdown in underlying inflation, prompting widespread speculation that the Federal Reserve (Fed) would slow its pace of rate hikes.

Major currencies surged against the dollar, and the yen once recorded its highest gain since 2008, and the pound since 1985.

U.S. Treasury yields also plunged, with benchmark 10-year bond yields set to see their biggest drop since March 2009.

Stock markets surged, with the Nasdaq Composite up more than 7%.

But Cleveland Federal Reserve Bank President Loretta Mester said on Monday that there were signs that inflation was slowing, but that monetary policy needed to be more restrictive to meet its inflation target.

Lower-than-expected inflation has helped the market, said Art Hogan, chief market strategist at B. Riley Wealth & Co. He said all of the CPI readings showed improvement and were heading in the right direction, “stopping the Fed from becoming more hawkish.”

The U.S. Labor Department released a seasonally adjusted consumer price index of 7.7% in October, down from 8.2% in September. 8.0%).

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“The CPI has strengthened dollar selling momentum,” said Lee Hardman, currency analyst at MUFG.

Joseph Lavagna, chief U.S. economist at SMBC Nikko Securities, said both the headline and core CPI fell short of expectations, making it clearer that inflation had peaked out. The Fed is still expected to raise rates by 50 basis points in December, but a 2023 rate hike is becoming more uncertain, he said.

The dollar has also bounced back from gaining more than 16% year-to-date.

There were speculations that the BOJ would intervene as the yen surged against the dollar, but Bipan Lai, head of the North American foreign exchange strategy division at CIBC Capital Markets, said, “It reflects the CPI, and I think it’s a move by some kind of coordinated intervention. It is highly questionable,” he said.

George Goncalves, head of U.S. macro strategy at MUFG Securities Americas, said the weaker dollar was due to lower Treasury yields. But the way we look at the market is changing.”

The Federal Funds (FF) interest rate futures market priced in the terminal rate (the final destination of the policy rate) was below 5%. The odds of a rate hike of 0.50 percentage points instead of 0.75 percentage points at the Federal Open Market Committee (FOMC) meeting in December rose to 71.5%.

The euro/dollar rose 1.93% to $1.0204. The yen rose 3.94% against the dollar to 140.92 yen. The pound/dollar rose 3.15% to $1.1714.

The turmoil in the crypto-asset (virtual currency) market has also had a negative impact on investor sentiment. Bitcoin rebounded 11.76% from the previous day’s plunge to $17,744. Since the beginning of the year, it has fallen more than 60%.

FTX Token, the native token of cryptocurrency exchange FTX, rose 153% to $3.826. However, since the beginning of the month, it has fallen about 85%.

Dollar/yen NY closing price 140.95/141.00

Opening price 146.51

High 146.57

Low 140.21

EUR/USD NY Closing Price 1.0208/1.0210

Opening price 0.9944

High 1.0221

Low 0.9942

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