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Fed expected to raise 50 bps after US inflation slower


US Dollar falls due to the lower-than-expected CPI which is 7.1%, and the Consumer Price Index in November of 0.1% below the 0.3% of market consensus, which is another moderation in monthly core CPI helps to reaffirm that the USD peak is here ($105.00).

The Fed is widely expected to hike the funds’ rate by 50 basis points (bps) on Wednesday, after four consecutive 75 bps hikes. If the data comes in hotter than expected, this will be problematic for the Fed eager to slow the pace of tightening and potentially weigh on risk assets and thus lead to a stronger US Dollar and the meeting is likely to be an increase in the projected peak for the funds’ rate in 2023.

The Dow Jones Industrial Average has raised 0.3% to close at 34108.64. The S&P 500 raised 0.73% to close at 4019.65. The tech-heavy Nasdaq Composite raised 1.01% to close at 11256.81. The surge of the stock market was the reaction of the CPI when the CPI was just released,  NAS 100 once reached 12223, then it falls back to 11776 after 3 hours,  Wall Street closed positive but the S&P 500 Futures struggle for clear directions. Further, the US Treasury bond yields go up and down. U.S. 10-year treasury yield sits at around 3.505%. The policy-sensitive 2-year treasury yield sits at 4.228%.

The decline of US inflation challenges the FOMC for the next announcement of the bps. Even with the pre-Fed caution, the DXY may witness further sidelined performance as the latest US CPI challenges the policy hawks. Also, the already-given 50 bps rate hike and lesser odds of witnessing any surprises from the FOMC added strength to the market’s inaction. However, a surprise from the Fed, either in the form of rate hike directions or economic projections, won’t be taken lightly.

Main Pairs Movement

The US Dollar dropped sharply on Tuesday, as all investors eyed the subdued US consumer price index reading.  The November Consumer Price Index was up by 7.1% YoY, below the 7.3% expected and shrinking from the previous 7.7%. The core reading in the same period was up by 6%, down from 6.3% in the previous month. The DXY index tumbled with nearly 1% losses and fell to a level below 103.7 when the weaker CPI was released.

The GBPUSD surged with 0.79% daily gains for the day as a weaker US CPI report deeply hurt the safe-haven greenback. The British Pound climbed above the 1.2440 level following the release of US consumer data. Meanwhile, the EURUSD rallied 0.9% after the announcement of critical data. The pair earned 0.91% on Tuesday.

The XAUUSD surged with a 1.65% gain daily, as the market anxiety ahead of today’s FOMC and a bit pale headlines from China. Gold rallied by almost 2% following the weaker-than-expected US CPI report.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
JPYTankan Large Manufacturers Index (Q4)07:506
JPYTankan Large Non-Manufacturers Index (Q4)07:5017
GBPGerman CPI (YoY) (Nov)15:0010.9%
USDCrude Oil Inventories23:30-3.913