Dollar capitalizes on hot inflation report, markets quiet down amid US holiday

The greenback capitalized on surging US Treasury bond yields and risk-aversion on Wednesday after the data from the US showed that consumer inflation jumped to its strongest level in more than 30 years. The US Dollar Index is consolidating Wednesday’s gains below 95.00 and the benchmark 10-year bond yield settled above 1.5%. Bond markets in the US will be closed due to the Veterans Day holiday on Thursday but Wall Street will open at the usual time. Following Wednesday’s crazy action, markets could remain relatively quiet amid thin trading conditions.

Macro events: The US Bureau of Labor Statistics reported on Wednesday that the Consumer Price Index (CPI) jumped to 6.2% on a yearly basis in October from 5.4% in September, marking the highest print since 1990. Moreover, the Core CPI climbed to 4.6% from 4%. The benchmark 10-year US Treasury bond yield rose nearly 8% and provided a boost to the dollar. The CME Group’s FedWatch Tool now shows that markets are currently pricing a more-than-70% probability of a Fed rate hike by June 2022.

During the Asian session on Thursday, the data published by the Australian Bureau of Statistics revealed that the Unemployment Rate rose to 5.2% in October from 4.6% in September. More worryingly, the Employment Change arrived at -46.3K in the same period, missing the market expectation for an increase of 50K by a wide margin.

The UK’s Office for National Statistics announced that the Gross Domestic Product (GDP) expanded by 1.3% on a quarterly basis in the third quarter, missing the market expectation of 1.5%.

Market mood: Inflation fears weighed heavily on stock markets on Wednesday. The Nasdaq Composite fell more than 1.5%, the S&P 500 lost 0.8% and the Dow Jones Industrial Average was down 0.66% by the closing bell. In the early European session, US stock index futures are posting small gains. On a positive note, Chinese real-estate giant Evergrande has reportedly made the payment on its bond coupons to the tune of $148 million and avoided a formal default. China’s Shanghai Composite Index rose more than 1% and the Nikkei 225 added 0.6%.

EUR/USD broke below 1.1500 and touched its lowest level since July 2020 at 1.1465. Currently, the pair is moving in a very narrow band below 1.1500.

GBP/USD’s reaction to the UK GDP was relatively muted and the pair is posting small recovery gains above 1.3400. Meanwhile, European Commission Vice-President Maros Sefcovic reportedly told EU ambassadors that the engagement with Britain on Brexit was not going well.

USD/JPY shot higher on the back of rising US T-bond yields and snapped a five-day losing streak. The pair is now looking to test 114.00.

Gold found demand as an inflation hedge after the US CPI data and reached its highest level since June near $1,870 before going into a consolidation phase. The bullish momentum seems to have gathered strength after XAU/USD broke above the stiff $1,835 resistance area as well.

AUD/USD lost more than 50 pips on Wednesday and extended its slide early Thursday following the disappointing jobs report. The pair is currently trading at a fresh monthly low near 0.7300.

Cryptocurrencies: Bitcoin notched a new all-time high at $69,000 but ended up closing the day deep in the negative territory around $65,000 on Wednesday. At the time of press, BTC/USD was virtually unchanged on the day. Ethereum lost its bullish momentum before testing $5,000 and stays calm around $4,700 on Thursday.

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