Summary:
US consumer prices increased in September, but a steady moderation in underlying inflation pressures bolstered the case for the end of rate hikes.
US consumer prices increased in September, but a steady moderation in underlying inflation pressures bolstered the case for the end of rate hikes. Markets showed only a modest reaction to the report.
The main culprits are related to services and shelter costs. Without progress on those fronts where prices proved to be very sticky, there could be little chance of the Fed achieving its goal anytime soon.
Trader are now pricing about a 40% probability of a rate hike in December, compared with about a 28% chance seen before the report. The yen failed to gain more upside momentum after a short-lived reprieve.
The currency is sliding towards its lowest level in more than 30 years as the BOJ holds firmly to its ultra-loose monetary policy, according to Mizuho Americas.
The bank expects the yen to hit as low as 155 against the dollar in Q1 next year and a shift in the Fed’s stance could stop its decline. The yen has been the worst performer in G10 currency year-to-date.
That prediction chimes with the views of Goldman Sachs and the Bank of America that the yen could fall to 155 early next year, although the median forecast for Q1 is 140 according to Bloomberg.
The pair remains slightly below the 150 psychological handle. Yen bulls are treading carefully as Treasury yields have been surging. A tight range between 148 and 150 could offer some trading opportunities.
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