USD Jumps, FED Rate Hike Odds Increase, As US Inflation Keeps Increasing
US consumer inflation increased once again in August against expectations of slowing down, which has turned the USD bullish on FED hike odds
Markets had been waiting this week for the CPI (consumer price index) report, which was released a while ago. It was expected to show a slight cool-off, but we saw another increase, which is a potential game-changer in the dollar trade and it has surged higher across the board. USD/JPY shot to 144.70 from 142.00 ahead of the data. In a sign of how fast money was positioned, USD/JPY fell to new lows just before the data. The moves elsewhere are in the 100 to 150 pip range.
US August 2022 Consumer Price Index Inflation Data
- August CPI YoY +8.3% vs +8.1% expected
- July CPI was +8.5%
- CPI MoM +0.1% vs -0.1% expected
- July CPI MoM was 0.0
Core CPI:
- August core CPI YoY 6.3% vs 6.1% expected, 5.9% in July
- Core CPI MoM 0.6% vs +0.3% expected, +0.3% in July
Details:
- CPI energy -5.0% vs -4.6% prior
- Gasoline -10.6% m/m vs -7.7% prior
- New vehicles +0.8% vs +0.6% prior
- Used vehicles -0.1% vs -0.4% m/m prior
- Owners’ equivalent rent +0.7% m/m vs +0.6% prior
- Food +0.8% vs +1.1% prior
- Real weekly earnings -0.1% vs +0.5% m/m prior
- Full release
Looking at FED fund futures, it looks like a 100 bps hike next week is now on the table. The implied odds of 100 bps are up to 23% from zero before the data. The terminal rate is showing 4.20% in March now from about 4.00% beforehand. Over in the stock market, S&P 500 futures are now down 57 points. In bonds, US 2-year yields are up 12 bps to 3.69%, which is a new cycle high.
Digging deeper into the report, the gasoline fall was widely expected but that was counteracted somewhat by a 1.5% m/m increase in electricity and 3.5% month-on-month rise in natural gas prices. New vehicle pricing was also a problem, rising another 0.8% to add to the 10.1% year/year decline.
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