• Treasury curve rises across the board; 2-year rises 9.7bps to 5.079%,  5-year higher by 10.3bps to 4.680%, the 10-year increases by 10.3bps 4.662%, and the 30-year jumped 10.5bps to 4.799%
• Sticky inflation and steady claims send USD higher against all its major trading partners; yen only 20+ pips away from 150
• Fed fund futures are not ready to abandon the possibility of one more interest rate hike

The dollar is rallying as US stocks are lower after hot inflation and claims data kept the risk of more Fed rate hikes on the table.  The labor market refuses to break and that will keep supporting the Fed’s ‘higher for longer’ stance on rates.  Wall Street is buying up safe-haven trades that include Treasuries, the dollar, and mega-cap tech and oil stocks.  King dollar isn’t ready to give up the crown until Wall Street is confident that the Fed is done raising rates. ​

CPI/Claims

The US inflation report came in a little hotter-than-expected. Inflation is still coming down and that should allow the Fed to stay on the ‘higher for longer’ course. Despite the geopolitical risks that are impacting energy prices, refiner margins have lowered and that should support limited upside with next month’s report. Hotel rates (lodging) rose 3.7% and that is a key driver to why shelter prices rose. The calculation of core services prices excluding shelter rose 0.6% from a month ago, which was the largest increase in a year.

Wall Street was expecting a firm CPI print given the hot PPI reading, but this report will keep the risk of one more rate hike on the table.  The rise in yields will likely last given pricing pressures will keep most of the Fed hawks leaning towards further policy tightening.

Weekly jobless claims held steady at 209,000, as states impacted by the UAW strike saw minimal increases in claims.  The labor market is slowly softening as continuing claims rose to the highest levels in seven weeks.

Soft landing hopes remain intact as core disinflation continues and as the labor market gradually weakens.

EUR/USD Daily Chart

EUR/USD (daily chart) as of Thursday (10/12/2023) has resumed its significant bearishness that has been in place since the middle of summer.  Sticky inflation is raising the risk that it could take more than a year for the Fed to get to its 2% target and that has investors debating whether more Fed rate hikes will occur.  If bearish momentum continues, possibly boosted by risk aversion from earnings or geopolitical risks, the EUR/USD could make a move towards the 1.04 region.  To the upside the 1.06 level provides key resistance.

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