Equity traders pounced on the weaker-than-expected US CPI data as the Federal Reserve might not be as hawkish as initially feared. US CPI dropped to 8.5% from 9.1%, and it undershot the 8.7% forecast. Considering the powerful US non-farm payrolls report last Friday, dealers were preparing themselves for the possibility of another 0.75% hike from the Fed at next month’s meeting. The sharp rise in the cost of living has been the primary motivation for the Fed to hike interest rates, also there is a political element, as workers are feeling the pinch, so the central bank must be seen to be acting. US tech stocks are the most sensitive to the perceived changes in interest rates. The NASDAQ closed lower for the past three sessions for fears the inflation figure would be hot. Now the CPI reading has fallen, the NASDAQ is up over 2.5%. Stock markets in Europe ended the day in positive territory as they received a boost from the bullish sentiment in the US.
It has been a terrible session for the US dollar as it has come under huge selling pressure because there is speculation a rate hike of only 50-basis points is warranted at the next Fed meeting. It is possible there will be a 0.75% lift because after all, a CPI rate of 8.5% is far cry from the 2% inflation target set by the central bank. EUR/USD traded above the 1.0300 mark, and it has printed a one month high. We could be at a turning point for the ECB’s and Fed’s policies, as the former only started hiking rates last month, while the latter might be on the cusp of scaling down the rate of their lifts.
Like other markets, gold saw a spike in volatility on the release of the CPI numbers. Initially, the metal printed a fresh one-month high due to the sharp fall in the US dollar. As the dust settled, gold pulled back from its peak as the broader risk-on mood in the markets directed funds away from lower risk assets. The yellow metal is basically flat on the session. WTI is under pressure as the EIA update showed that US oil inventories surged by 5.5 million barrels, which was way above the 100,000 barrels forecast. A glut in inventories could be viewed as weak demand.