Fed’s future path becomes clearer post CPI data

Will Fed say goodbye to the rate hiking era? The Fed will likely be in a holding pattern, with inflation moderating and a weakening labour market. Another rate hike from here looks less likely given this softer inflation reading. 

The dollar softened on Tuesday following data for US consumer prices that indicated slowed inflation in October, suggesting that US inflation is now moderating. This implies that rate hiking cycle by the Federal Reserve is done. At 104.266, the dollar index was down 1.32% at the time of writing during the US session.

Important currencies against the weaker US dollar included the euro and the Japanese yen, which increased by 1.13% and 0.59%, respectively. Because of lower petrol prices last month, US consumer prices remained unchanged. Through October, the consumer price index (CPI) increased by 3.2% over the previous 12 months.

On Monday, the yen experienced a brief increase in value relative to the US dollar, which was ascribed to a surge in option trading instead of any action from Japanese authorities. In the simplest scenario, intervention might take place if the dollar/yen level breaches the 152 level.

The labour market is getting weaker, inflation is moderating, and the Fed is probably in a holding pattern. Between Wednesday and Friday, $3.5 billion worth of yen options with strike prices ranging from 151.90 to 152 are scheduled to expire. For the first time since 1998, Japanese authorities entered the currency market to strengthen the yen.