US CPI Still High, Dollar Strengthens Only For a Moment

The increase in the US Dollar after the release of the CPI data did not last long. The market immediately realized that rising inflation occurred globally, so the US Dollar corrected again.

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On Thursday (10/February), the US Consumer Price Index (CPI) for January 2022 was reported to have grown 0.6%, holding on to the previous month's growth level. In fact, this consumer inflation data was previously expected to decline to 0.4% due to the outbreak of Omicron infection cases in the US.

Meanwhile, annual inflation continued to climb to 7.5%, the highest since February 1982. The US core CPI which excludes prices for volatile goods such as food and fuel also rose 0.6%, better than expectations of a 0.5% decline.

Widespread Inflation Rise, US Dollar Fails to Rebound

The US Dollar experienced a Short Squeeze after the release of US Inflation data tonight. Shortly after consumer inflation was released which was better than expected, the US Dollar did respond by strengthening. However at the time of writing about 3 hours after the publication of the data, the US Dollar Index has slumped and is trading at 95.2.

This happens because the market thinks that the Fed is not the only central bank that will raise interest rates. The increase in inflation occurred globally, so that other major central banks are expected to follow the steps of the Fed.

"The market is changing positions. This is something investors can't ignore," said Kathy Lien, director of BK Asset Management.

The Fed is expected to raise interest rates by 50 bps in March. However, the market is also paying attention to how high other central bank rate hikes are. Speculation of the ECB's monetary tightening is increasing, as evidenced by the statements of a number of ECB officials regarding the potential for an increase in interest rates this year. Meanwhile, the BoE, which just raised interest rates last week, is still in the market spotlight regarding how far the central bank is committed to tightening monetary policy.

"The CPI data not only gave a big shift in market expectations of the Fed, but also had an impact on how progressive the BoE is going forward," said Edward Moya, analyst at OANDA. many other developed countries are now becoming more aggressive in tackling inflation."