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The Dollar Falls After CPI Data Indicated the Fed May Scale Back Rate Hikes

The dollar sank substantially on Thursday after consumer prices in the United States climbed less than predicted last month and statistics indicated that underlying inflation had peaked, allowing the Federal Reserve to ease up on its aggressive interest rate hikes.

According to the Labor Department, the consumer price index increased by 0.4% in October, matching the previous month’s increase. Reuters polled economists, who predicted a 0.6% increase in the CPI.

Core CPI rose 0.3% month on month after rising 0.6% in September, excluding volatile food and energy prices. “Markets are benefiting from lower-than-expected inflation data. Every line of the study shows a progressive improvement “Art Hogan, chief market strategist at B. Riley Wealth in New York, concurred.

“The good news is that we witnessed a strong sequential improvement, indicating that inflation is obviously on the rise. That, in turn, puts a more hawkish Fed at bay.”

The dollar index plummeted 1.495%, while fed funds futures reflected a steep drop in expectations for the Fed’s top target rate, which went below 5%. The probability of the Fed hiking by 50% rather than 75 basis points in December has risen to 71.5%.

Annual inflation has reduced as large rises from the previous year are excluded from the index’s calculation. CPI climbed 7.7% year on year in October, down from 8.2% in September, as headline inflation slipped below 8% for the first time since February.

“The CPI report has bolstered the dollar’s sell-off momentum,” said MUFG currency strategist Lee Hardman. “It provides the market more confidence that the inflation cycle is turning and the Fed will decrease its rate hike pace in December.”

The euro gained 1.37% to $1.0148, while the Japanese yen gained 2.18% to 143.30 per dollar.

The dollar was on course for a second straight day of robust gains, with investors still awaiting the final results of the United States’ midterm elections on Tuesday, which will determine whether the Democrats retain control of Congress.

According to the most recent statistics, Republicans are getting closer to securing a majority in the House of Representatives. Nonetheless, control of the Senate was in doubt as Democrats outperformed expectations.

The dollar has gained more than 16% this year but has lost some speed in recent weeks on optimism that the Fed may begin to reduce the number of its rate hikes after four consecutive 75 basis point increases.

According to economists, a cryptocurrency crisis has also harmed market sentiment. The Binance exchange abandoned a bailout arrangement for rival FTX on Wednesday, leaving FTX CEO Sam Bankman-Fried rushing to investigate all possibilities with his company on the verge of collapse.

“I do believe there has been some spillover from what has happened in crypto,” said Ray Attrill, head of FX strategy at National Australia Bank.

According to Foley of Rabobank, a sell-off in crypto assets is likely to have helped the dollar.

Bitcoin gained 10.08% to $17,478.00 after falling below $16,000 for the first time since late 2020 in the previous session. This year, it has dropped by more than 60%.

FTT, FTX’s native token, was 96% higher for the day at $2.977, however it was down roughly 90% month to date.

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