The CPI report raised speculation the Fed will slow the pace of interest rate hikes
US stock indexes saw a rally overnight to close at their highest levels since early May. The data showed that July’s CPI slowed due largely to lower energy prices. The rate of inflation retreated to 8.5% year-over-year in July from 9.1% in June. The details of the report showed that energy prices fell 4.6% in July, with gasoline prices down 7.7%. Against this backdrop, the Dow Jones Industrial Average finished 1.6%, the S&P 500 advanced 2.13%, and the Nasdaq Composite rallied 2.9%.
Tracking overnight gains on Wall Street, Asian equity markets advanced on Thursday, cheering US inflation, with the tech-heavy Hang Seng index in Hong Kong being the best performer in the region, adding more than 2%. Softer-than-expected consumer price inflation data raised speculation the Fed will slow the pace of interest rate hikes. The Japanese stock market is closed on Thursday on account of Mountain Day.
Extending the global rally, European stocks opened higher on Thursday, keeping the good mood from yesterday, with US stock index futures creeping north in early pre-market deals. Investors are revising down their expectations for a 75-bps rate hike by the Fed next month. Capping gains in the financial markets, Fed’s Daly said the central bank is not near done yet in battle against inflation.
In currencies, the US dollar licks its wounds after a plunge witnessed in response to the inflation report. The USD index briefly dipped to late-June lows around 104.65 before bouncing back above 105.00 on a daily closing basis. The greenback struggles for direction on Thursday, refraining from further recovery attempts as traders continue to digest the CPI report. As such, EURUSD has settled slightly above 1.0300 after a brief jump towards 1.0370, preserving bullish bias for the fourth session in a row.