Headline CPI comes in slightly over expectations.
NEW YORK Oct 13 Reuters - The dollar fell from its one year high on Wednesday as longer-dated Treasury yields fell when U.S. inflation data showed prices rose solidly last month, while the minutes from the Federal Reserve's September meeting confirm tapering will begin soon. The consumer price index rose 0.4% in the past month versus a 0.3% increase anticipated by economists polled by Reuters. The CPI grew 5.4% in the year and fell below the previous level in August, up to 5.3%. Excluding volatile food and energy components, the so-called CPI core stood at 0.2% in the last month vs 0.1% in August.
The gap between the two and 10 year Treasury notes collapsed to their narrowest in two weeks after having increased on Friday to a 3 - 1 2 -month high.
The market is now pointing to a significant pivot here as far as inflation is shown more signs of being transitory than persistent, and that's likely to force the Fed to deliver a rate hike well in advance of what people were anticipating, said Edward Moya, senior market analyst at Oanda.
The market had been pricing in a rate hike for December 2022, but now it is planning September of that year, he said.
The greenback then moved higher after the CPI data, touching a three-year high versus the Japanese yen before edging lower along with longer-dated bond yields.
The dollar index, which measures the whitepaper against six rivals, was last down by 0.515% at 94.036 since Tuesday, when it touched 94.563, its highest since late September 2020.
The dollar was moving higher and it's likely going to trigger a considerable pullback here, so I think this is going to likely trigger that, Moya said.
The dollar fell 0.29% against the yen to 113.275 yen.
The euro was up 0.56% to $1.15945, rebounding from its last session high of $1.1522 with the subsequent volatility of 15 months against the euro.
A surge in energy prices has added inflation concerns and fuelled bets the Fed may need to act faster to normalize policy than initially projected.
The commodity-linked Aussie dollar rose 0.35% to $0.7370, near its one-month high of $0.7384 hit on Tuesday.
The minutes from the September Fed policy meeting signaled that the central banks could start tapering their crisis support for the economy in mid-November, though they remain divided over how much of a threat high inflation poses and how soon they will need to raise interest rates in response.
What is baked in a cake, says Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.
What are the main reasons for inflation dynamics leading them to increase interest rates fast? So interest liftoff becomes a big focus for the markets, and that's where we are seeing price action along the yield curve, she said.
Fed Governors Lael Brainard and Michelle Bowman were due to speak later on Wednesday.
In Bitcoin, bitcoin traded 2.88% higher at $57,048, an increase over last month. 91, after reaching a five-month high of $57,855 after her onset.