U.S. inflation rises to 1 - yr high, ditching Fed stimulus

337
3
U.S. inflation rises to 1 - yr high, ditching Fed stimulus

Headline CPI comes in slightly above expectations.

Traders now see 50% chance of Fed hike by July next year.

NEW YORK LONDON, Oct 13 Reuters - The dollar held near a one-year high on Wednesday after U.S. inflation data showed prices in September rose solidly, stoking expectations that the Federal Reserve will announce a tapering of stimulus next month with the potential for rate hikes by mid-2022.

The consumer price index rose 0.4% this month, versus a 0.3% rise anticipated by economists polled by Reuters. In the 12 months that closed Sept. 1 increased the CPI 5.4%, up from a 5.3% year on year increase in August.

Excluding the volatile food and energy components, the so called core CPI climbed 0.2% last month, up from 0.1% in August.

The numbers were a little bit above expectations, but I don't think it really surprises a lot of people, Said Minh Trang, senior FX trading executive in Silicon Valley Bank, said. What grocery stores do you use and where do you stop? When it comes to the Fed, it gives them more support for a change in monetary policy stance in regards to tapering, in regard to potentially higher rates, he said.

The yen's shares touched a fresh nearly three-year high against the greenback, above 113.800 yen, before easing. The pair traded last at 113.555.

A surge in the energy prices has fueled inflation concerns and prompted bets that the Fed may need to move faster to normalise policy than previously projected, sending two-year Treasury yields to their highest in more than 18 months overnight.

The dollar index, which measures the greenback against six rivals, eased slightly to 94.311 from Tuesday, when it touched 94.563 for the first time since late September 2020 on the back of higher Treasury yields.

The euro was up 0.25% at $1.1559, slightly above its lowest in 15 months, $1.1522, in the previous session.

The Fed will release minutes from its latest meeting on Wednesday, potentially providing a catalyst for more stability in the dollar.

Today's FOMC minutes release could confirm that a November taper announcement can be hard to resist for the Fed but also that there were discussions of the potential impact from further tightening of U.S. and global financial conditions, said Valentin Marinov, head of G 10 FX research at Credit Agricole.

I further believe that the Fed could opt to ignore the modestly mixed job report for September and the delay rather than resolution of the U.S. debt ceiling issue, an earlier start of QE taper will actually have a positive impact on the economy. Three Fed policymakers said on Tuesday that the U.S. economy has healed enough to begin to scale back the central bank's asset purchase program, including vice-chair Richard Clarida.

Most Fed policymakers continue to say inflation pressures will prove transitory.

Governors Michelle Bowman and Lael Brainard are among the Fed officials who should speak later on Wednesday.

By July, funds on the market could cost about a 50 - 50 chance of rate increase.

The risk-sensitive Australian dollar dipped to $0.7349, retreating from Friday's high of $0.7384 at one month.

Bitcoin dipped 1.53% at $55,140 and it was down 55% of the time. 44, after reaching a five-month high of $57,855.