US Dollar: Yields and Fed bets climb on hot CPI – Rabobank

Stronger-than-expected US CPI has sent US 2-year and 10-year yields sharply higher and renewed discussion of a possible 50 bps Federal Reserve rate rise, according to Rabobank’s RaboResearch Global Economics & Markets team. Renewed inflationary pressure in groceries, housing and services underpins the move, the report says, noting that the sell-off follows a rush by investors back into Treasuries.

US CPI surprise renews bets on aggressive Fed tightening

"Yesterday’s US CPI print came in hotter than expected at 0.4% m-o-m headline vs. a consensus of 0.3% and 0.3% core vs. a 0.2% market view. To put it in the words of the usually dovish Fed voter Goolsbee, “It’s another distressing report, borderline disturbing. We’ve been hoping to get progress.” Instead, we saw an acceleration in grocery and food inflation, persistent housing/shelter price pressure, and a delayed pass-through from earlier energy shocks feeding into medical care, household furnishings, and other daily expenses."

"The reaction in US 2-year yields was dramatic - they jumped 19bps while 10-year yields rose 14bps to briefly go back above 5% again; today, we have a Bloomberg story talking about the possibility ofa 50bps hikefrom the Fed!"

"Of course, that US yield spike came just after everyone rushed back into Treasuries after the AI and bullish oil trades hit an air pocket with last week’s US election on the view that the former is likely to be slowed down and that we are closer to peace than war in the Middle East on the back of the recent Democrat Blue Tsunami.Now imagine if either of those were not the case."

(An editor reviewed this article, which was produced with the assistance of an Artificial Intelligence tool. Learn more.)