US rates, dollar hit new highs on hot inflation

Data current as of 2/13/2024

Key points

• CPI inflation beat expectations by 0.2%: (0:48)
• US dollar rose on sticky inflation: (2:44)
• Treasury yields hit a 2-month high: (3:48)
• US rate cut in may now unlikely: (4:36)
• Can USD keep rising to 30-year highs?: (5:29)

CPI beats expectations, USD soars

January Consumer Price Index (CPI) inflation data has presented an unexpected turn, exceeding forecasts by 0.2%. Headline inflation came in at a persistent 3.1% and core inflation held firm at 3.9% on a year-over-year basis. These figures suggest that inflationary pressures are more tenacious than previously anticipated, potentially altering the course of monetary policy and impacting markets.

The immediate reaction to the CPI report was a surge in the value of the US dollar (USD). USD/JPY soared by over 100 pips, reaching 150.00 - a level not seen thus far in 2024. This indicates a strengthening of the US dollar against a basket of currencies, as investors flock to the perceived safety of the dollar in uncertain economic times.

How inflation is affecting rates

The bond market has also felt the ripple effects of the CPI data, with Treasury yields hitting a two-month high. The benchmark 10-year yields climbed past the 4.25% mark, reflecting a shift in investor sentiment towards expecting higher interest rates for longer to combat persistent inflation.

Given this environment, the likelihood of a US interest rate cut in the near future has dwindled, with expectations for an adjustment at the upcoming May Federal Open Market Committee (FOMC) meeting now falling below 50% (CME FedWatch tool). This shift in expectations can have significant implications for traders, as interest rate policies are a key driver of market movements.

Will USD reach new highs?

The question many traders are now contemplating is whether the US dollar can continue its ascent to reach 30-year highs. With USD/JPY only about 150 pips shy of this extreme, traders are closely monitoring economic indicators and geopolitical developments that could influence this trajectory.

For traders, these are times that require vigilance and adaptability. The ability to interpret economic indicators and their potential impact on markets is critical. Strategic positioning in currency pairs like USD/JPY, as well as in interest rate-sensitive instruments, can offer opportunities amidst the volatility.

How to trade US dollar

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open, monitor, and close positions on USD pairs

Trading forex requires an account with a forex broker like tastyfx. Many traders watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.