Hotter-than-expected US inflation and hawkish Fed commentary have shifted market expectations toward a potential 50 bps rate hike in December, driving the US Dollar higher and pushing EUR/USD down to 1.1190.
October core CPI printed 0.3% m/m versus 0.2% consensus, a third consecutive hot reading, while hawkish Fed governor Waller said a 50 bps December hike should be considered. Rate-hike odds surged and the debate shifted to hike size, which is direct dollar-supportive repricing.
The hot October CPI (core 0.3% m/m vs 0.2% consensus) and Waller's 50 bps hike signal flipped rate support back in favour of the dollar. The pair already retreated from the first 1.1250 resistance area to 1.1190 as US yields jumped more than 10 bps in the 2-5yr sector.
The hot October CPI (core 0.3% m/m, headline 0.4% vs 0.3% expected) triggered a bear steepening of the US yield curve: 2-5yr yields rose more than 10 bps, and the 10-yr yield was 7 bps higher (30-yr +4 bps) as markets priced a possible 50 bps December hike.
October Norwegian CPI came in softer than expected: annual core CPI slowed from 3% to 2.7% and the adjusted m/m rise of 0.3% missed the 0.4% expected, easing pressure on Norges Bank to tighten. Money markets through March 2027 price no more hikes, and the krone lost ground, with EUR/NOK at 10.61.
The US Dollar strengthened after October core CPI printed at 0.3% m/m, exceeding the 0.2% consensus and marking a third consecutive hot reading. Following the data, Fed Governor Waller signaled that a 50 bps rate hike should be considered for December to protect Fed credibility. Consequently, the US yield curve bear steepened, with 2-5yr yields rising over 10 bps and EUR/USD retreating to 1.1190.
Hotter-than-expected October CPI inflation and Waller's comments about a possible 50 bps December rate hike lifted expectations of Fed tightening, supporting the dollar.
The stronger inflation data raises odds of a Fed rate hike in December, which favours the dollar and pushed EUR/USD back down from the 1.1250 area to around 1.1190.
Yields jumped, with the 2-5yr sector up more than 10 bps, the 10-year up 7 bps and the 30-year up 4 bps, as markets shifted focus to whether the Fed hikes 25 or 50 bps in December.
Norwegian inflation slowed more than expected in October, and with Norges Bank having just kept rates at 4.5% and markets not pricing further hikes, the krone lost ground against the euro.