Title: U.S. Inflation Data Supports Fed’s Decision to Pause Rate Hike, USD/JPY Reaches Five-Week High
Date: August 11, 2022
On August 11, during the Financial Breakfast, the U.S. dollar index rebounded after digesting U.S. inflation data for July, resulting in gains against the yen. The data showed a slight increase in consumer prices but indicated that inflation remained well below the Federal Reserve’s (Fed) target of 2%. Gold prices also climbed as the data consolidated expectations that the Fed’s rate hike cycle is nearing its end.
Regarding commodities, U.S. gold futures closed down 0.1% at $1948.9, while Brent crude futures fell 1.3% to $86.40 a barrel, and U.S. crude futures dropped 1.9% to $82.82. In the stock market, the Dow Jones index closed up 0.15% at 35175.75 points, the S&P 500 index closed up 0.04% at 4469.51 points, and the Nasdaq composite index closed up 0.12% at 13737.99 points.
The rise in gold prices on Thursday resulted from the U.S. Labor Department’s report on consumer price index (CPI) data for July. The CPI showed a 0.2% increase, matching the rise in June. However, the year-over-year increase was 3.2%, the smallest gain since March 2021, reinforcing expectations that the Fed will halt future rate hikes. The dollar weakened after the data release.
Silver rose 0.2% to $22.72 an ounce, platinum increased by 2.2% to $908.21, and palladium jumped 4.5% to $1,290.94. In the oil market, prices closed lower for the day, but Brent crude remained near its January highs due to concerns over supply disruptions from Saudi Arabia and Russia, as well as tensions between Russia and Ukraine in the Black Sea region.
The Organization of the Petroleum Exporting Countries (OPEC) stated in its monthly report that the oil market is expected to stay robust in the second half of the year, supported by improved global economic growth. This report reaffirmed OPEC’s forecast for strong oil demand in 2024.
Regarding foreign exchange, the U.S. dollar index reversed its losses and recorded gains against the yen. The dollar reached a five-week high of 144.735 against the yen and closed at 144.71 yen, showing a 0.7% increase. Furthermore, the dollar only slightly recovered against the euro, trading at $1.0985, up 0.1%. This recovery in the dollar against major currencies pushed the dollar index up 0.1% to 102.56.
The U.S. CPI data for July indicated that consumer prices rose slightly, but it still exceeded the Fed’s 2% target. Therefore, the probability that the Fed will keep rates on hold at its September meeting increased to 90.5% from 86.5% before the data release, according to CME Group’s FedWatch tool.
Helen Given from Monex USA stated that even though CPI growth was slightly below expectations, the 3.2% increase was still higher than the previous month, keeping another 25 basis points of interest rate hikes this year likely. San Francisco Fed President Daly also commented on the data, emphasizing that more progress is needed in balancing the economy before considering further rate hikes.
In conclusion, the U.S. inflation data for July consolidated expectations of the Fed pausing its rate hike cycle. Gold prices climbed, while the dollar index rebounded against major currencies. The oil market remained bullish, supported by OPEC’s positive outlook for oil demand. Investors are now closely watching for any signals from the Fed regarding its monetary policy decisions in the coming months.
Disclaimer: The information provided here is solely for informational purposes and does not constitute financial advice.