The US dollar index rose sharply

On February 12, the US Bureau of Labor Statistics released the Consumer Price Index (CPI) data for January. The data showed that the US CPI in January grew beyond expectations and was far higher than the long-term target of 2% set by the Federal Reserve.

Specifically, the US CPI rose 3.0% year-on-year in January, higher than the market expectation of 2.9%; after excluding the volatile food and energy prices, the core CPI in January rose 3.3% year-on-year, higher than the market expectation of 3.1%. Month-on-month, the US CPI rose 0.5% in January, higher than the market expectation of 0.3%; the core CPI in January rose 0.4%, higher than the market expectation of 0.3%.

After the release of the CPI data, the market’s expectations for the Fed’s interest rate cut cooled again. According to the data from the Chicago Mercantile Exchange’s “Federal Reserve Observation Tool”, the market expects the Fed to maintain the current interest rate unchanged in March, which has increased from 95% one day ago to 97.5%, and the probability of a 25 basis point cut has dropped from 5% one day ago to 2.5%. In addition, the Fed may only cut interest rates by 25 basis points once for the rest of the year. Wells Fargo analysts said: “CPI is higher than expected, confirming the market’s concerns about inflation, which will keep the Fed on the sidelines.” After the CPI data was released, Fed Chairman Powell also said that the latest CPI data showed that although the Fed has made substantial progress in curbing inflation, there is still more work to do.

At the same time, the CPI data exceeded expectations, reinforcing the market’s expectations that the Fed will maintain higher interest rates for a longer period of time to control inflation, pushing the dollar up. After the data was released, the US dollar index, which measures the US dollar against six major currencies, rose by more than 0.5% in the short term, breaking through 108.5 at one point. Looking ahead to the market, UBS analysts believe that inflation exceeding expectations may prompt the Fed to keep interest rates stable, and the US dollar may remain relatively strong in the short term. However, some institutions pointed out that on February 12, the US dollar index fell back after rising, showing that there is still uncertainty and disagreement in the market about the future direction of the Fed’s monetary policy, so the US dollar may fluctuate at a high level in the short term.