Higher US inflation routs bullish sentiment


A rise in US inflation has prompted stocks to fall sharply, while the greenback has returned to the highs seen at the beginning of the year, says Chris Beauchamp, chief market analyst at online trading platform IG.

US inflation sends markets into fresh risk-off decline

“US inflation looks to be a problem that will not be going away anytime soon according to the latest data released this afternoon. With the core PCE price index widely heralded as the Fed’s favoured inflation gauge, today’s rise of 0.6% for the month of January has sparked a surge in pricing for a 50-basis point hike at next month’s meeting. Perhaps more worrying than a slightly higher terminal rate is the sticky nature of inflation, with yesterday’s pricing for a first rate cut in December 2023 now delayed into 2024. Not all markets are losers under the weight of a higher for longer monetary policy stance, with FX traders enjoying a fresh resurgence for the dollar after months of declines.”

Dollar surge continues

“It is still a month until the next Fed decision, but the way seems clear for the greenback to keep rising. This recent slew of strong data could be turning into a trend, reinforcing the hawkish tendencies of central banks across the globe, but especially in the case of the Fed. Dollar bulls have endured a tough few months, but they are rubbing their hands in anticipation of more gains.”