The US consumer price index pushed significantly higher in June to the dismay of the Federal Reserve. At 9.1% year/year, the level of prices rises is now at 40-year highs. This is a very embarrassing and distressing situation for the world’s largest central bank which has allowed inflation to run out of control after misinterpreting its driving forces in 2021.
Yesterday’s report has now created speculation over a 1% rate rise at this month’s FOMC announcement. The expectation was for a 50 – 75 basis point rise, but that has gone out of the window following the latest reading.
Markets were naturally volatile after the print; the dollar saw a huge bid which saw the EURUSD pair break below parity for a few seconds before bouncing higher to above $1.0100. Stocks gyrated as participants weighed up the prospect of more aggressive rate rises.
The Bank of Canada surprised markets yesterday with a dramatic 1% rate rise to a 2.5% headline level. The Canadian central bank expressed a desire to front-load hikes to tame inflation and respond to any slowdowns that may occur in the future. The Canadian dollar rallied on this development.
Written by Viv Savani. 6:40am, July 14th 2022
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