By Herbert Lash
NEW YORK (Reuters) – The dollar fell more than 1% against the major currencies on Tuesday after U.S. consumer price data showed the pace of inflation eased further in October, raising chances that the Federal Reserve has finished hiking of the interest.
U.S. consumer prices were unchanged last month amid lower gasoline prices, the Labor Department’s Bureau of Labor Statistics (BLS) said, after rising 0.4% in September.
In the 12 months through October, the consumer price index (CPI) rose 3.2%, after rising 3.7% in September, BLS said.
The dollar plunged immediately after the report’s release and government bond yields plummeted. The 10-year benchmark fell below 4.5%, removing a key support for the dollar’s strength this year.
“We think the dollar will continue to weaken somewhat throughout the year, perhaps even into early January,” said John Doyle, head of trading at Monex USA in Washington.
The , a measure of the U.S. currency against six peers, fell 1.55% to 103.980, on track for the biggest single-day percentage decline since Nov. 11, 2022.
The US currency was also poised for the biggest fall since November 2022 against the euro and British pound.
The dollar fell 1.73% against the euro to $1.089, 1.82% against the British pound to $1.250 and 1.52% against the Swiss franc to 0.888.
The dollar also fell more than 1% against the Norwegian krone and more than 2% against the Australian and New Zealand dollars.
The figures were welcome news in the market, where many analysts predicted that the Fed rate hike had reached its peak.
“You can say goodbye to the era of rate hikes,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
But Doyle warned, among other things, that the end of rate hikes did not mean rate cuts would come as soon as markets predicted, because of the tight U.S. labor market and the resilient U.S. economy that has kept consumer spending steady.
“I don’t think they’re going to want to necessarily cut rates,” he said, referring to Fed policymakers. “The Fed will feel pretty comfortable holding out longer.”
Fed Chairman Jerome Powell and other policymakers have sought in recent days to undermine expectations that the U.S. central bank was done with its aggressive rate hike cycle.
According to CME’s FedWatch tool, futures show a greater than 68% probability that the Fed will cut its overnight rate by 25 basis points or more by May next year.
YEN STILL ON INTERVENTION WATCH
The Japanese yen, meanwhile, also gained against the dollar, but less than its peers. The yen strengthened 0.97% to 150.23 per dollar as it came under pressure earlier after briefly jumping against the dollar on Monday after hitting a one-year low. This move was attributed to a wave of options trading and not to any intervention by Japanese authorities.
DTCC data from LSEG’s Eikon platform shows that yen options worth a notional $3.5 billion with strike prices between 151.90 and 152 are set to expire between Wednesday and Friday.
Another $2.2 billion worth of options with a notional value between 151.90 and 152 expire between November 20 and the end of the month.
In September and October last year, the Japanese authorities intervened in the currency market for the first time since 1998 to boost the yen.
“Our base case is that we can intervene if we break the 152 level for the dollar/yen,” said Yusuke Miyairi, currency strategist at Nomura.
OPTIONS STAKES PRICES BETWEEN 151.90 AND 152 YEN
Expiration date November 15, November 16, November 17
Notional value of 2.6 548.7 351.1
options expiring billion million million
(U.S. DOLLAR)
