CPI data overnight may influence Fed’s decision on the rate hike, short USD/JPY?
US CPI rose by more than forecasted last month due to apparel costs surging by the most in almost 30 years. Treasuries yield rose, and stocks tumbled after the release of the data.
- CPI y/y rose 2.1% vs estimated 1.9%; Weeks before the wage inflation revealed by the jobs data for January was a meaningful concern.
- OIS market pricing has March hike at 88% after the data vs 85% before the CPI data; Treasuries fell sharply, led by the belly of the curve.
- Inflation pressures are rising, and the market is worried that the Fed could act more aggressively this year than previous years.
- New Fed Chairman Jerome Powell suggested earlier this week that officials would forge ahead with gradual tightening as it keeps an eye on financial-system risks following the recent equity rout. To us, this shows that Fed has no intention to calm the stocks markets’ sell-off.
- USD/JPY dropped after the data as funds to safe-haven continued.
Fullerton Markets Research Team
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