Today’s CPI data shows that inflation at the consumer level increased during December. CPI was +0.3% MoM and +3.4% YoY. And Core CPI (basket of consumer goods excluding food and energy) was +0.3% MoM and +3.9% YoY. December CPI results either matched or exceeded estimates, unwelcome news for the Fed and its effort to bring inflation down to a 2% long-term average.
The dollar index is higher following the CPI data, +0.29% at 102.66 after trading as low as 102.15 overnight. Stubborn inflation implies the Fed will need to keep rates at current levels for longer which underpins dollar strength and U.S. Treasury yields.
Dollar gains are against all G10 pairs and most other majors except for emerging market ZAR, TWD, BRL, and KRW. The dollar’s primary gains: +0.44% vs. CHF, +0.43% vs. AUD, +0.29% vs. JPY, +0.26% vs. EUR, +0.25% vs. MXN, +0.20% vs. GBP, and +0.16% vs. CAD.
U.S. Treasury yields are higher in all tenors but only fractionally, the biggest gain +0.019% in the 30-year tenor. Implied probabilities for a 25bps rate cut at the FOMC’s meetings this year are 63% for March, 89% for May, 96% for June, 83% for July, and 90% for September. The implied total of rate cuts this year is 1.40%
Bitcoin is +4.20% following yesterday’s SEC approval to trade Bitcoin ETF’s. Oil is +2.37% at $73.05/barrel.
