US Dollar sinks as inflation data signals slower interest rate hikes

US Dollar tumbled against other foreign currencies on Thursday as the latest inflation data from the United States shows consumer prices rising lesser than expected in October 2022. With the slowing down of inflation in the economy, the market expects US Federal Reser ve to rethink its aggressive rate hike policy.

If the Federal Reserve decides to slow down interest rate hikes, we can expect more sharp falls in the value of the US dollar against other major foreign currencies.

According to data released by Labour Department on Thursday, in October 2022 Consumer Price Index rose at a meager rate of 0.4% in comparison with the CPI rate in September 2022. Economists and market analysts had predicted at least a 0.6 percent increase in CPI rates.

Prices of goods excluding food and energy commodities increased by nearly 0.3 percent during the last month. In September 2022, CPI for commodities other than food and energy had grown by 0.6 percent.

Federal Reserve of The United States of America

Chief market strategist of B. Riley Wealth, Art Hogan said that a softer-than-expected inflation report is acting as a tailwind for markets. He also said that all the reports regarding inflation and consumer prices in the US economy have so far shown sequential improvements when compared to previous periods.

The dollar index fell 1.495% and fed funds futures priced in a sharp decline in expectations for the Fed’s peak target rate, which fell below 5%. The likelihood of a 50% basis point hike by the Fed instead of 75 in December rose to 71.5%.

Annual inflation rose by 7.7 percent in October 2022. In September 2022, the CPI rose by 8.2 percent which forced US Federal Reserve to hike interest rates by another 75 basis points.

The euro rose 1.37% to $1.0148, while the Japanese yen strengthened 2.18% versus the dollar at 143.30.

MUFG currency strategist Lee Hardman said that the latest inflation report has enforced the strong sell of momentum for the US Dollar in the market.

The dollar had been on track for a second consecutive day of strong gains, with investors still waiting for the final results of U.S. mid-term elections on Tuesday, which will indicate whether the Democrats retain control of Congress. The result of the US midterm elections are highly vital for the US dollar and the domestic economy as policies regarding fiscal spending and spending on the social sector will drastically change under a senate and congress under Republican party.