7.5 percent inflation in the US. And seven rate hikes this year?

11.02.2022 09:20|Conotoxia Ltd Analyst Team

The key event of the week seems to have caught investors by surprise, as US year-over-year inflation rose to 7.5 per cent. This marks the fastest price increase since 1982. As a result, speculation has begun as to how the Fed might respond to such macroeconomic data.

The data may suggest that such strong price growth in the U.S. has to do with rising energy costs, labor shortages and supply disruptions accompanied by strong demand. The biggest contributor to inflation appears to be energy prices, which rose 27 percent year-over-year, with gasoline prices up 40 percent. Inflation accelerated for food prices to 7 percent. Excluding the volatile energy and food categories, the core CPI rose 6 percent, the most since August 1982.

50 basis points up with 93 percent probability

As a result of the above data, there could be very significant changes in the interest rate and bond markets in the US, which may indirectly translate to the USD, stock indices, gold or cryptocurrencies. Despite the fact that representatives of the Federal Reserve recently seemed distanced towards a possible 50 bps hike in March, the interest rate market leaves no illusions. With 93 per cent probability, it is pricing in just such a rate hike next month.

If the Fed were to actually raise rates by half a percentage point, it would be the first such aggressive rate hike since 2000. According to Goldman Sachs, there will be seven U.S. interest rate hikes this year.

Central banks decide the appeal of the dollar and euro

On the currency market, the first reaction seemed to be mixed, only in the evening the dollar began to clearly strengthen against the euro, overcoming the level of 1.1380. The divergence in monetary policy between the European Central Bank and the Federal Reserve is likely to grow. In Europe, interest rates may rise slowly, cautiously and in a small scale, while in the US the market is waiting for a systematic increase in the dollar interest rate.

Already yesterday, the yield on 10-year US bonds exceeded 2 percent, the highest level in 3 years. And the yield on 2-year bonds rose by the strongest intraday rate since 2009. Their interest rate seems to have already exceeded 1.6%.


Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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72.43% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72.43% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trading on CFDs is provided by Conotoxia Ltd. (CySEC no.336/17), which has the right to use the Conotoxia trademark.