Week Ahead – Market spotlight turns to US CPI inflation
XM Group | Jan 05, 2024 04:07AM ET
- US CPI inflation is the next big test for the US dollar
- Yen traders turn to Tokyo CPIs and wages for BoJ exit hints
- China’s inflation and trade numbers to impact broader sentiment
- UK monthly GDP on tap amid recession fears Will the US CPIs corroborate the market’s implied Fed rate path?
The US dollar staged a decent recovery during the first week of the year, with market participants scaling back some basis points worth of rate reductions expected by December, although the total number of rate cuts anticipated by investors is still way larger than the amount of rate cuts indicated by the Fed’s December dot plot.
At that gathering, the median dot for 2024 was revised down to 4.6% from 5.1% and Fed Chair Jerome Powell appeared more dovish than anticipated at the press conference following the decision. He said that rate increases are not the base case anymore and that the question now is “when will it become appropriate to begin dialing back?”
With that in mind, at some point last week, investors were nearly fully convinced that a 25bps cut will be delivered in March and that interest rates should be lowered by 160bps by December. Now that number stands at around 140 and the probability of a March cut is down to around 70%.
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