US core and headline inflation data missed market expectations in both the YoY and MoM figures
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Summary:
- The CPI inflation data missed market expectations for October.
- Initial market reaction in the wake of the release of the data.
US CPI data missed market expectations
Since the Dollar is struggling to maintain rallies, a significant positive surprise from Thursday's inflation data is necessary for the bulls to retake the lead. Markets anticipated an increase of 0.6% month-over-month for October, bringing the year-over-year gain to 8.0%, slightly less than September's 8.2%, when the U.S. inflation data was revealed at 13:30 GMT. It is anticipated that the crucial core inflation number would come in at 0.5% month over month and 6.5% year over year.
Because the actual number did not match the estimates for both the headline and core inflation rates which are the Fed's preferred measure—however, excludes food and energy—were expected to be lower but still high. Anything above 8% and 6.5%, however, might reverse the recent USD slump and keep the Fed on the hawkish side of things. Since the FOMC meeting last week, the peak rates for the Fed in 2023 have decreased, moving from 5.1% to a level closer to 5%.
US CPI inflation MoM came in at 0.3%, missing market expectations and the YoY figure came in at 6.3%, also missing market expectations. This could mean that the halt in the US dollar rally may extend further.
The markets reaction to the release of the CPI data
The mechanics for the Dollar are straightforward: a beat would have been consistent with a rise as investors are compelled to plan for future interest rate increases from the U.S. Federal Reserve. A negative surprise was expected given the weaker dollar and the idea that "peak rates" have finally been reached. The size of the variance is crucial since it determines how responsive currency markets are.
The initial market reaction saw the EUR/USD currency pair strengthened as well as with the GBP/USD pair, S&P 500 dropped and the USD/JPY weakened in the wake of the release of this data.
Sources: finance.yahoo.com, poundsterlinglive.com, dailyfx.com
