The fear surrounding the latest release of US inflation data turned out to be fully justified. We mentioned previously that many traders would be hoping the numbers would not beat expectations, but that is exactly what happened. The month-on-month and year-on-year core figures came in hotter than anticipated at 0.4% and 3.8% respectively. The data release preceded the FOMC minutes, which once again emphasised the need to tame inflation before any serious talk of monetary easing. Markets are now pricing in only two rate cuts this year as opposed to three.
The news sent the DXY flying straight over 105, up over one percent in its best day in a year. The move pushed USDJPY over 153 Yen, an exchange rate not seen since 1990. Other currencies also took a hammering versus the greenback, as did stocks. Adding confusion to the narrative, PPI figures dropped a day later on Thursday, which actually revealed lower than expected price rises, in direct opposition to the inflation data.
If American inflation figures came in too hot, then Chinese figures came in too cold. In a report on Thursday, inflation numbers for the world’s second largest economy came in far lower than expected at just 0.1%. Coupled with factory-gate prices continuing to decline, the release will no doubt contribute to growing concerns of deflationary pressure in the RMB.
Strength in the Dollar may have tempered the meteoric rise in gold on Wednesday, which saw bullion prices lose $18 an ounce, but the pullback did not last. Thursday saw yet another record high for the precious metal, this time reaching over $2,370 an ounce. By the looks of things, early Asian trading is pushing it higher still. Silver too, recently finding its footing, edged up to just under $29 an ounce during this morning’s trading session.
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