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Investing.com – In a bad week for the currency master, who has been lobbying everyone for many weeks, pushing most assets into sharp and dramatic declines.
The US dollar fell from the 110 level and posted a 3.21% loss in one day as investors flocked to riskier assets.
This came after the US inflation rate eased in October, as headline inflation reached 7.7% vs 8.2% and core inflation at 6.3% vs 6.6% .
Coinciding with the dollar’s move from its throne, several asset classes managed to post significant gains in light of hopes the Federal Reserve ends its monetary tightening path following the release of its inflation report.
Traders were further encouraged by news of China’s easing of lockdown measures, which boosted optimism, while the UK’s 0.6% mom drop in GDP put further pressure on the pound.
inflation report
Markets had a quiet week as all eyes were on Thursday’s US inflation report and market participants expected weak inflation data, which could mean less aggressive monetary policy from the Federal Reserve.
Given the US central bank’s propensity to fight inflation, all stakeholders were eagerly awaiting a decrease in the inflation reading and an improvement in market sentiment towards risk aversion.
Thursday’s inflation report revealed that consumer prices rose 0.4% month-on-month, while economists had expected a 0.6% rise.
The reading led to a decrease in the annual rate of inflation from 8.2% to 7.7%. While the core inflation rate, which excludes the food and energy sectors, climbed 0.3% month-on-month, against expectations for a 0.5% increase.
On an annual basis, the core inflation rate fell from 6.6% to 6.3%. The sudden drop in inflation rates seen in October was attributed to commodity prices.
The prices of basic necessities decreased by 0.4% compared to the previous month, while the prices of basic services increased by 0.5% As for the consumer price index of basic necessities, it this is the first decline recorded in seven months.
Market response
Since the release of the inflation report, the prices of all asset classes have increased as risk appetite has increased.
Climbing 7.35% in Thursday’s trading session, it was trailed by the Standard & Poor’s 500 index, which recorded gains of 5.54%, while rising 3.70% during the same session.
Long-term yields fell about 30 basis points, pushing the 10-year yield to 3.81% from 4.08%.
Interest price
Markets are currently pricing in a 75 basis point rate hike by the Federal Reserve at its last meeting of 2022, due on Dec. 14, to 28%.
However, the market could be seen as overly optimistic on one reading, and a 50 basis point rate hike is still 100% possible.
Attack on the dollar
In regards to the foreign exchange market, the inflation report has unleashed an attack on the dollar and sent major currencies reaching levels not seen in 3 months or more.
The dollar fell from its recent high of 110 to 106 within 24 hours of the inflation data release.
It surged past 1.03 and jumped to 1.18, while the yen surged more than 6 digits to 138, surged and breached the 0.96 barrier to 0.95.
earnings
It rose at the end of trading on Friday, Nov. 11, as the US currency declined, to eke out weekly gains of about $93 an ounce.
This comes after US data pointing to a slowdown in inflation fueled hopes that the Federal Reserve is slowing its large rate hikes.
Gold prices ended Thursday’s trade about $40 up, with the US currency lower.
The price of gold futures contracts for delivery in December increased by 0.9%, or $15.70, to reach $1769.40 an ounce.
The yellow metal’s immediate delivery price rose 0.5% to $1,764.35 an ounce at the close of trading on Friday.
In the week ending today, gold prices posted gains of about 5.5%, or the equivalent of $92.80 an ounce, which is their largest weekly gain in more than two years.
Conversely, that which measures the US currency against a basket of major currencies fell by about 1.6%, to 106,449 points, and is heading for its largest weekly drop since March 2020.
Lazard report
Pressure is mounting on central banks around the world after the Federal Reserve hinted at slower rate hikes.
In Europe, European Central Bank President Christine Lagarde and her Vice-President had previously indicated that the central bank was determined to do its part to fight inflation and had called on EU member state governments to refrain from fueling prices through large spending programs.
While Lagarde admits that the rate hikes have had a belated effect, she also argues that politicians don’t have the luxury of waiting to see the full effect.
“What we have to do at the moment is difficult,” said Lagarde, “we have to bring inflation back to the target level of 2% over the medium term, that’s our main concern and the compass we follow.”
British economic slowdown
UK gross domestic product fell 0.6% month-on-month in September against the consensus for a decline of 0.4%.
September’s GDP was affected by the Queen’s funeral, which led to the closure of almost all shops and commercial activities, and perhaps also by the turbulence on the financial markets following the so-called end-of-month mini-budget.
Asia
China on Friday eased some of its strict rules related to containing the coronavirus, including reducing the two-day quarantine period for close contacts of infected and inbound travelers and lifting penalties for airlines for bringing in too many cases. .
The lifting of some restrictions a day after China’s new Politburo Standing Committee discussed Covid at a meeting chaired by President Xi Jinping cheered markets even as many pundits warned the measures were being implemented at a gradual pace and that reopening the economy may still be a challenge Things are out of reach.
