The release of US inflation data showed that the growth in consumer prices did not far outperform market expectations.
The US dollar index (DXY) slumped to breach the key threshold of 95.00 in trading yesterday's New York session. When the news was written at the end of the Asian session (13/January), DXY was still continuing its decline to the 94.90s range. This is because the release of US inflation data shows that the growth in consumer prices has not far outperformed market expectations.
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| DXY Daily |
The US Bureau of Labor Statistics reported that US inflation grew at a rate of 0.5 percent (month-over-month) in December 2021. The growth was slightly higher than market expectations of 0.4 percent, but weaker than the 0.8 percent growth in November. Meanwhile, the annual inflation rate rose from 6.8 percent to 7.0 percent, exactly with the consensus estimate.
US inflation growth year-on-year incised the highest spike since June 1982. However, market participants think these data will not make the Fed more hawkish. As a result, speculation about the Fed's four interest rate hikes this year has receded to just three.
US dollar rivals reveled in the stabilization of expectations for this "Fed rate hike" by printing gains of between 0.5 percent and 1 percent in one session. The euro, pound sterling, Aussie dollar, Canadian dollar and Kiwi dollar are currently still occupying their respective strongest positions since last October-November. However, analysts caution that the latest series of news - US inflation data and the Fed Chair's testimony - does not change the direction of the Fed's policy to be dovish.
"I don't think there's anything in the CPI (Consumer Price Index) component that causes the market to breathe a sigh of relief," said Jan Nevruzi, a strategist at NatWest Markets. this year? I don't think so."
"The USD took a beating yesterday, but don't be fooled into thinking that has something to do with what Powell said. In the medium term, there's still good reason to go long on the USD," said Bipan Rai at CIBC Capital Markets, "In the short term, we admits that a recalculation of the Fed's hawkish (strength) will require a pause and long USD positions face significant resistance. Patience is required here."
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