US inflation data released yesterday showed a steeper-than-expected decline, raising hopes that the Fed will hike only once in the current cycle, sending the dollar lower and riskier assets firmly higher.
➡️ US CPI (inflation) data released yesterday showed a month-over-month increase of 0.2%, below the expected 0.3%, sending the annualized rate to a long-term low of 3%, below 3 ,1% which was the consensus prediction. The data sent stock markets sharply higher and the US dollar index to a 1-year low, while EUR/USD and GBP/USD currency pairs rise to new 15-month highs, the latter traded above $ 1.32. The major stock market indexes are also seeing big increases, with both the NASDAQ 100 Index and S&P 500 Index hitting new 1-year highs yesterday. The outlook is bullish for risk assets and bearish for the US dollar as there is now a stronger expectation of further US rate hikes and trend traders will be positioned in these directions. An increase is still expected at the next meeting, but is seen as likely to be the final increase in this monetary tightening cycle.
➡️ The Bank of Canada held a policy meeting yesterday where, as expected, it increased its interest rate by 0.25% to 5.00%. The Bank also said underlying inflationary pressures had become more persistent, suggesting it will take longer to reduce inflation, which is hawkish rhetoric. This triggered relative strength in the Canadian dollar.
➡️ The Reserve Bank of New Zealand left its interest rate unchanged at its policy meeting yesterday, but said inflation remains too high. The New Zealand dollar initially fell a bit after the release, but then rose strongly again in line with the strong risk movement in the markets.
➡️ Bitcoin remains below what appears to be a very crucial round number at $31k, with price action now looking more uncertain, suggesting a bullish breakout may not be likely.
➡️ There will be a release of US PPI data later today which will be closely monitored to see if it matches yesterday's lower inflation data, as well as a release of unemployment claims.
➡️ Today there will be a release of UK GDP data, which is expected to show a month-on-month contraction of 0.3%.
Credit by DailyForex.com