US dollar soars amid strong inflation data

After the US inflation data was released, the dollar experienced a significant increase in value.

Inflation growth rates for the year stayed at their highest levels in four months, despite predictions of a decrease.

A 6-day period of decline was broken as the dollar index rose above 106.

For almost three weeks, DXY had been testing the lows, even in the middle of the day.

In the US, core inflation has been decreasing, reaching its lowest point in two years.

On Thursday, October 12, the US Department of Labor released a report indicating that the consumer price index (CPI) had increased by 0.4% in September, as opposed to the predicted 0.3% m/m decline. This was higher than expected.

In September, consumer prices increased by 3.7%, the same as in August, which was higher than the anticipated 3.6% drop from the same month last year. This kept the annual inflation growth rate at its highest level for the past 4 months.

Gasoline prices saw a significant increase of 2.1%, which was the main factor in the higher-than-anticipated monthly growth of 1.5% in September, following a 5.6% rise in August due to higher energy prices.

In September 2021, the Core Consumer Price Index (Core CPI), which excludes food and energy prices, rose 0.3%, as expected. This resulted in a 0.2% decrease in the annual Core CPI growth rate to 4.1% year-over-year, which was also in line with forecasts. This marks the lowest level for the indicator in two years.

Core prices saw an increase, largely due to the 0.6% increase in house prices in September following a 0.3% rise in August. Additionally, vehicle insurance, holiday costs, personal care items, and new vehicles all experienced price hikes, further contributing to the overall rise in core prices.

The Bolvin Wealth Management Group believes that the Fed will likely pause in November, despite consumer price growth exceeding forecasts. This is due to the combination of rising Treasury yields, increasing gas prices, and a terrorist attack on Israel, which the Fed and the market can accept.

The Royal Bank of Canada does not anticipate that any more interest rate increases will be necessary in the current year; however, the Federal Reserve is still ready to act by raising rates if inflationary pressures continue to increase.

BBH believes that the market is underestimating the likelihood of a tightening of Federal Reserve policy. This is not the first time the market has been wrong about the Fed's rate hike cycle.