CPI Fuels Fed Bets, Will the Dollar Hike?

On Thursday, the dollar’s unrelenting ascent resumed, supported by both expectations for a quicker Federal Reserve policy tightening and flows into safe-haven assets amid escalating recessionary worries.

After temporarily surpassing the mark overnight, the dollar recorded fresh 24-year highs of over 128 yen. The currency moved back to near parity with the euro.

The robust jobs figures that sparked expectations for a significant Reserve Bank rate rise also drove up the value of the Australian currency. Both the Singapore dollar and the Philippine peso appreciated versus their American counterparts as a result of unexpected policy tightening by their respective monetary authorities. After touching 138.28 yen for the first time since September 1998, the U.S. dollar was 0.6 percent higher at 138.235 yen.

The euro fell by 0.34 percent to $1.0024. Overnight U.S. consumer pricing data revealed that inflation was already near four-decade highs and was increasing much more.

What To Expect?

The analyst at Commonwealth Bank of Australia (OTC: CMWAY), Kristina Clifton, stated in a client note that the simple line is that U.S. inflation momentum is building. She stated that persistently rising inflation increases the possibility that the FOMC continues to rise aggressively and causes a recession. They anticipate that USD support will continue due to recession worries.

Traders increased their wagers that the Federal Reserve would increase interest rates by 100 basis points at its meeting on July 26–27. It is believed that a rise of at least 75 basis points will occur.

Raphael Bostic, president of the Atlanta Fed, added weight to the rumor by stating that a full-point hike is possible given the higher-than-expected inflation data.

Later, the Bank of Canada shocked the markets with a percentage-point rate, igniting more Fed wagers. On Thursday, the Canadian dollar remained unchanged at C$1.29805 after falling by 0.32 percent overnight. After the Monetary Authority of Singapore tightened policy on Thursday outside of its planned meetings to tackle rising inflation, the U.S. dollar fell 0.5 percent to S$1.3969.

As the central bank stunned market participants with a 75 basis-point increase, the dollar fell 0.37 percent to 56.08 Philippine pesos. After statistics on Thursday showed the unemployment rate dropping to a 48-year low, the Australian dollar increased by 0.21 percent to $0.67725, reversing an earlier loss.