The US dollar has mostly given back its CPI gains.
Fixed income has foreshadowed the move with US 2-year yields now down 3.6 bps on the day to 4.33% from a high of 4.39% after the data.
The thinking for the FX market is: If bonds aren’t worried about inflation, why should we be?
Over in Fed funds futures, the market is now pricing in 143 bps of cuts this year from 136 bps an hour ago.
In my CPI preview I wrote:
I think any upside surprise will be faded by the market in about an hour because inflation is yesterday’s news
Well, here we are.
I don’t think it really matters whether the Fed cuts in March, April or June and the real trade is what inflation regime we’re in and there’s ample reason to believe that we’re headed back to a 2010s-style era of low growth and low inflation, with some help from AI to offset the slow deglobalization impulse.