Markets were trying to guess whether the FED would raise interest rates by 0.50% or 0.75% in this meeting until late last week, when the Bank of Canada (BOC) delivered a 100 bps (basis points) rate hike, opening the door of other central banks to do so if they thought this is appropriate. Then the odds of a 100 bps rate hike by the FED increased and markets then started trading the 75-100 bps decision.

CPI inflation jumped to 9.3% in June as the report last week showed, while PPI (producer price index) increased above 10% the next day, which means that CPI will keep increasing in the coming months. Retail sales also came stronger in Friday, but not that strong as to push the FED toward a rate hike. Some FED members pointed to the housing reports this week, as the last decent data release before next week’s FOMC rate decision. Today’s report was slightly positive but again, nothing to justify a 100 bps or 1.00% rate hike by the FED.

US June 2022 Housing Starts and Building Permits

• June housing starts 1.559m vs 1.580m expected
• May housing starts were 1.549m (revised to 1.591m)
• Permits for June 1.685m vs 1.650m expected
• Prior permits were 1.695m

The Fed’s Waller highlighted retail sales and this week’s housing data as potential reasons to shift to 100 bps if they were ‘materially’ stronger than expected. The headline here is weaker but it’s balanced by the revisions to the prior and the beat on permits. In any case, this certainly isn’t materially stronger and should put another nail in the coffin of the 100 bps debate. The USD has turned bearish since Friday on these premisses.

EUR/USD Live Chart