NEW YORK: The dollar jumped against the euro and hit a one-month high against the yen on Thursday after data showed that US consumer price inflation came in above economists’ expectations in December, raising some doubts that the Federal Reserve will cut rates as soon as traders expect.
Bitcoin also surged to a two-year high as several exchange-traded funds (ETFs) tied to the spot price of the cryptocurrency began trading.
The headline US Consumer Price Index (CPI) rose 0.3% last month, for an annual gain of 3.4%, against expectations of 0.2% and 3.2%, respectively.
In particular, prices rose more than expected as rents maintained their upward trend.
“The details of the report will give dovish Fed officials pause,” said Adam Button, chief currency analyst at ForexLive in Toronto.
Traders are pricing in aggressive expectations for rate cuts this year, with the Fed seen as beginning to cut rates in March.
But “today’s CPI report suggests that the Fed’s initial rate cut may be later than the market is hoping for,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.
Traders expect the US central bank to ease monetary conditions as the US economy weakens and inflation moves back closer to the Fed’s 2% annual target.
But that may not occur as quickly as some expect.
“The question everyone is struggling with is what kind of inflation regime we are in - are we still in a 2010s era of low growth, low inflation and we’re still just working through the end of the pandemic adjustment and then we’re back into that?” Button said.
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