US CPI rose to the highest reading since June 1982
Wall Street stocks eased from early gains, but still edged higher on Wednesday, as investors digested the inflation report. The highly-anticipated December US CPI data showed that the headline inflation rose 0.7% year-over-year from 6.8%, as expected. That was the highest reading since June 1982. At that, the monthly pace of price growth, as well as the core CPI, came in higher than expected, albeit rose at a slower pace as compared to the previous month’s figures.
The market now puts the chances of the Fed raising short-term rates by at least 0.25% in March at around 75%. Elsewhere, Fed’s Beige Book showed that many districts said supply chain disruptions constrain growth, while economic activity across the US expanded at a modest pace in the final weeks of 2021. The S&P 500 rose 0.28%, the Dow Jones Industrial Average rose 0.11%, and the tech-heavy Nasdaq rose 0.23%.
Despite the results painting a strong inflation picture in general, the dollar dipped across the market both in a knee-jerk reaction to the report and later during the North-American session. The USD index fell from the 95.60 area to notch two-month lows just below the 95.00 figure. On Thursday, the prices extended losses to the 94.80 area.
As such, EURUSD exceeded the 1.1400 figure and registered two-month highs in the 1.1465 zone as the common currency derived support from the intensifying sell-off in the greenback, with Treasury yields falling as well. The GBPUSD pair climbed to late-October highs above the 1.3730 figure where the 200-DMA arrives. A weaker dollar along with the prospect of rate hikes by the Bank of England boosted sterling.
Meanwhile, Asian stocks retreated on Thursday, struggling to maintain the previous day’s upward momentum amid a surge in coronavirus cases in the region. Tokyo’s Nikkei 225 index dropped nearly 1%, while the Shanghai Composite shed 1.17%. In Seoul, the Kospi lost 0.35%. Bucking the trend, the S&P/ASX 200 in Australia added 0.48%.