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U.S. Underlying Inflation Deceleration Halts Rate Hikes
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U.S. Underlying Inflation Deceleration Halts Rate Hikes

The unexpected slowdown in U.S. underlying inflation has quashed prospects of imminent interest rate hikes, prompting a surge in futures markets and a decline in the dollar against the euro.
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16 NOV, 2023

By Johanna Zidani from RankiaPro Europe


October inflation data, particularly the underlying inflation that fell below expectations, eliminates any possibility of the Federal Reserve raising rates in December. Moreover, expectations of further declines in price levels in the coming months suggest potential interest rate cuts.

The U.S. CPI remained unchanged in October, below expectations, resulting in the year-on-year rate dropping to 3.2%, one-tenth below expectations. This decline was favored by gasoline prices, which continued to fall in November.

Meanwhile, the core CPI increased by 0.2% on a monthly basis, also below expectations, causing the year-on-year rate to drop to 4.0%. By components, the rise in health insurance prices was offset by a further decline in housing price inflation.


Market reaction on November 14 at 4:30 pm (intraday charts)

Futures markets responded with strong gains, and after the opening, the indices are trading with gains exceeding 2% for the Nasdaq. Lower expectations of future rate hikes boosted fixed income with significant yield cuts, more pronounced in the longer segments of the curve. The dollar has lost ground against the euro, which is trading above $1.08.

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