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Sr. Technical Strategist
Hot month-on-month U.S. consumer price index readings on both headline and core have handed Federal Reserve officials fresh reason to talk tough on inflation. Fed speakers are keeping rate hike bets alive and the U.S. dollar supported, with Christopher Waller, Michelle Bowman and Austan Goolsbee each signaling that inflation still needs attention. Markets are fully priced for an upcoming rate hike and almost 90% priced for at least another 25-basis point hike beyond it. For dollar traders, that pricing matters because it keeps a bid under the currency between data releases.
Michael Boutros, StoneX Media Senior Market Analyst at StoneX, covers currencies, commodities and equity indices and the macro events that move them. That coverage gives insight into how Federal Reserve commentary and U.S. inflation data are feeding into rate hike pricing and the U.S. dollar.
Federal Reserve officials are turning hot monthly inflation data into a case for more aggressive tightening, keeping rate hike bets firmly alive. Specifically, Governor Christopher Waller suggested that another hot consumer price index reading could warrant a larger hike, Michelle Bowman said a lot more work is needed, and Austan Goolsbee described the inflation figures as bordering on disturbing. Boutros sees the run of remarks as a host of Fed speakers "giving the markets a lot to digest" at a time when monthly inflation keeps running hot. "You're seeing some Fed officials come out with some commentary that suggests there's more room for a more aggressive tightening policy,".
Rate hike pricing driven by Federal Reserve commentary is giving the U.S. dollar steady support against major currencies, including the Swiss franc. According to Boutros, markets are fully priced for an upcoming hike and almost 90% priced for at least another 25-basis point increase, which would add 50 basis points from current rates. Notably, the dollar has climbed 2.1% against the Swiss franc from its monthly low as that pricing has firmed. For currency traders, the rate path priced by markets is now one of the main forces behind pairs such as USD/CHF. In Boutros's words, "It's continued to offer some fuel in the upside for the U.S. dollar, and continues to remain a bid under that U.S. dollar move."
Federal Reserve rate hike expectations surface first in a short list of U.S. data releases and official appearances. Initial jobless claims give a regular read on the labor market, while the producer price index tracks price pressure further up the supply chain. Consumer price index readings, both headline and core, test how persistent hot monthly inflation is. Appearances by Fed speakers then show how officials are interpreting each release and if the case for tighter policy is gaining or losing support.
--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: Michael Boutros, StoneX Media Senior Market Analyst
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