US CPI Uptick Sparks Speculation on Prolonged High Rates

In a week marked by dovish Fed rhetoric and rising yields, the latest US Consumer Price Index (CPI) report has sent shockwaves through the financial markets. The unexpected uptick in CPI figures has raised speculations about prolonged high-interest rates, overshadowing other significant developments in the world of finance.

Key Factors for Today

• US CPI Uptick Raises Speculation of Prolonged High Rates
• Rising Shelter Costs Increase Prospects of 'High for Longer'
• EIA Build Reverses WTI Gains From Sanctions and OPEC Optimism
• ECB Policymakers Play Down Need For Additional Tightening
• Aussie Plunges 1.50% on Stronger US Yields and Poor China Data

Market Movers

• The US Consumer Price Index (CPI) edged higher than expected, raising the possibility of the Federal Reserve maintaining high interest rates, leading to a stronger US dollar.
• September's CPI data showed slight increases in monthly and yearly inflation rates, with a notable 0.5% spike in rental costs, prompting concerns about the Fed adopting a "high for longer" approach.
• US sanctions on tankers carrying Russian oil above $60 per barrel, coupled with an Iran-Russia cooperation deal, influenced crude oil markets. Despite OPEC's optimism, a substantial 10.2 million barrel increase in EIA inventory and heightened OPEC production led to crude prices retreating to $83.50 per barrel.
• Currency movements included a 0.07% gain in the Australian dollar, a 0.14% decline in the New Zealand dollar, and the Euro and Pound both rising by 0.16% and 0.23%, respectively. The Japanese Yen increased by 0.12%, and the Swiss Franc by 0.19%.

Economic Calendar

• France Inflation Rate
• Euro Area Industrial Production
• US Trade Balance
• ECB President Lagarde Speech
• Fed Harker Speech
• Michigan Consumer Sentiment
• IMF/World Bank Annual Meetings
• New Yuan Loans

The Big News

ECB Policymakers Double Down on Peak Rates

Francois Villeroy of France and Yannis Stournaras of Greece, both ECB policymakers, expressed optimism regarding inflation returning to 2%, without the need for further tightening. Minutes from the ECB's recent meeting revealed that their models suggested that a deposit rate of 3.75% to 4% could achieve this inflation target if maintained for a sufficient duration. This implies that the ECB may halt its hiking efforts. The euro faced pressure from a stronger dollar, ending its six-day streak at 1.0640, with the next support level anticipated below or at $1.05.

Aussies Plunges 1.50% Following US CPI, China Data

The Australian dollar took a hit, falling 1.50% against the US dollar on the back of rising US yields. China's CPI figures, which fell below expectations, added to the pressure as it showed no growth compared to last year. Exports also displayed weakness at 6.2% versus the 7.6% seen in the previous year, while imports have not shown positive growth since September of the preceding year. If bears continue to dominate, the AUD/USD pair may see further declines, potentially reaching 0.6286, though a brief respite towards 0.6364 remains possible.