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After a quiet begin to the brand new week, the response to the US CPI knowledge yesterday was definitely a banger. The greenback crumbled whereas shares rallied onerous, with the latter reaffirming the technical breakout from the top of final week. In the meantime, bonds additionally rallied strongly and it’s just about a reversal of fortunes for the dollar. It was now a case of promote the greenback, purchase all the things else.
Because the mud settles, it begs the query: How did the US CPI knowledge influence the Fed outlook? Let’s have a look.
Fed funds futures curve
As you may see, there’s a dramatic shift going into subsequent 12 months and merchants at the moment are much more satisfied of a charge reduce coming across the center of 2024. That considering now sees the primary charge reduce introduced ahead to June as an alternative when it was beforehand in July earlier than the US CPI knowledge.
Whereas the info yesterday reaffirms the the downtrend in inflation stays intact, we’re nonetheless speaking 4% core inflation thoughts you. And we’re nonetheless seeing month-to-month will increase within the likes of lease, shelter, and meals costs. So, to say that we’re destined to hit 2% inflation within the close to future may nonetheless be misguided.
However now we have to go based mostly on what the market is telling us and there’s no use preventing that. For now, the market believes that the Fed is completed and there’s no doubtless additional risk of charge hikes. And that is what merchants are working with in the meanwhile.
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