US Inflation Beats Forecasts

The US Dollar is pushing firmly higher today on the back of hotter-than-forecast US inflation data yesterday which has seen December rate hike expectations lifting again. Monthly CPI came in at 0.3% vs 0.2% expected on core and 0.4% vs 0.3% expected on headline. Annualised data was not available this month due to the govt shutdown in October last year. Still, on the back of last week’s bumper set of US labour market readings, market pricing for a year-end rate hike has jumped up to just below 90% from around 80% ahead of the data.

Hawkish Fed Commentary

Alongside the data, we’ve heard a slew of hawkish Fed commentary this week with policymakers Waller, Logan and Schmid all voicing support for a further hike next month with Logan signalling her preference for two more hikes from the Fed.  The latest Fed dot-plot forecast showed broad support for a hike and recent data is seen as corroborating that view. Indeed, with both jobs and inflation data having risen since that meeting, the question is how many policymakers will now have turned more hawkish given that 4 of the 18 signalled two hikes to come. Looking ahead, comments from Fed policymakers will be closely watched as traders look to gauge the support for a further hike beyond December. As such, USD is likely to push higher into any comments reflecting support for further tightening and any further data strength also.

Technical Views

DXY

The index looks to be setting up for a fresh breakout with price now testing the bear trendline from YDT highs. Above here the YTD highs and 103.20 level will be the key resistance zone which, if broken, opens the way for a test of the bull channel highs and long term bear trend line around 106.