NEW YORK: The dollar fell more than 1 percent against major currencies on Tuesday after US consumer price data showed the pace of inflation moderating in October, increasing the odds that the Federal Reserve is done hiking interest rates.
US consumer prices were unchanged last month amid lower gasoline prices, the Labor Department’s Bureau of Labor Statistics (BLS) said, following a 0.4% rise in September.
In the 12 months through October, the consumer price index (CPI) climbed 3.2% after rising 3.7% in September, BLS said.
The dollar immediately tumbled on the report’s release and Treasury yields plunged, removing a major support to the dollar’s strength this year.
“We think that the dollar will continue to weaken a bit throughout the end of the year, maybe even early into January,” said John Doyle, head of trading and dealing at Monex USA in Washington.
The dollar index, a measure of the US currency against six peers, slid 1.30% to 104.240, on track to its biggest single-day percentage decline since Nov. 11, 2022.
The US currency was also poised for its largest declines since November 2022 against the euro and British pound.
The dollar slid 1.5% against the euro to $1.086, slumped 1.63% against the British pound to $1.248 and slipped 1.24% against the Swiss franc to 0.890.
The data was welcome news in the market, where many analysts have been predicting the Fed will not hike rates further.
“You can say goodbye to the rate hiking era,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
But Doyle, among others, cautioned the end of rate hikes did not mean rate cuts would be coming as soon as markets were predicting due to a tight American labor market and resilient US economy that has kept consumers spending.
“I don’t think that they’re going to be itching to cut rates necessarily,” he said, referring to Fed policymakers. “The Fed’s going to feel pretty comfortable to ride it out longer.”
Fed Chair Jerome Powell and other policymakers in recent days have tried to push back against expectations that the US central bank was done with its aggressive rate-hike cycle.
The Japanese yen, meanwhile, also gained against the dollar, but less than its peers. The yen strengthened 0.64% to 150.73 per dollar after earlier coming under pressure when it briefly jumped against the dollar on Monday - having touched a one-year low. The move was attributed to a flurry of trading in options rather than any intervention from Japanese authorities.
DTCC data from LSEG’s Eikon platform shows yen options worth a notional $3.5 billion with strike prices between 151.90 and 152 are due to expire between Wednesday and Friday.
Another $2.2 billion notional worth of options with strikes between 151.90 and 152 will expire between Nov. 20 and the end of the month.
Japanese authorities in September and October last year intervened in the currency market to boost the yen for the first time since 1998.
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