US inflation data comes in hotter than expected, pushing the dollar up against the euro

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Investors from across the country were waiting for the US producer inflation data for November 2022 to come out in order to try and get some hints about the future behavior of the US dollar, the Fed, and the US economy, in general. The data finally came in late last week, and it did not bring good news.

In fact, the dollar already edged higher against the euro on Friday, while many also expect that the report is creating a case for the Fed to continue to raise interest rates. Even in the best-case scenario, the Fed might simply slow down with the interest rate hikes, but it is unlikely that it will abort them in the near future.

The US PPI (Producer Price Index) grew by 0.3%, according to the data, which is in itself bad news since the forecast was only 0.2%.

On the plus side, the PPI indicates that the underlying trend in inflation is moderating, which might mean that the Fed’s strategy so far is working. However, it also points out to growing concerns among the market participants, regarding the consumer price inflation report due next week.

The consumer price inflation report will also come mere days before the Fed makes its interest rate decision for December, so there is a lot going on right now, and a number of things will make an impact on the market in the near future.

Interest rate hikes might slow down their pace in December

BMO Capital Markets’ head of US rates strategy, Ian Lyngen, commented on the new report, noting that it was a strong read on prices, which will leave the market very cautious. He expects that market participants will expect a similar outcome next week, when other reports come out.

Unfortunately, with the current situation, it is unlikely that the interest rate hikes will stop anytime soon. After all, the US central bank is seeing one of the fastest interest rate-hiking cycles since the 1980s. However, Chair Jerome Powell said less than a month ago that the Fed might scale back the pace at which the rates are increasing and that this could happen in December.

Compared to the US dollar, the euro was 0.1% lower, sitting at around $1.05465. However, it still managed to remain on track, heading towards seeing gains for the third week in the row.

Britain’s sterling, however, rose to a four-day high of $1.2273, seeing a 0.3% increase, following the government’s statement about the upcoming reforms that are meant to keep London among the most competitive global financial hubs. However, big changes might come in Europe too, soon, as the Bank of England, as well as the European Central Bank, are also going to announce their own interest rate decision next week.

For the moment, the market participants are betting that the UK and EU will also slow the pace of rate hikes, alongside the Fed, even though the exact decision has yet to be made.

About Ali Raza PRO INVESTOR

Ali is a professional journalist with experience in Web3 journalism and marketing. Ali holds a Master's degree in Finance and enjoys writing about cryptocurrencies and fintech. Ali’s work has been published on a number of leading cryptocurrency publications including Capital.com, CryptoSlate, Securities.io, Invezz.com, Business2Community, BeinCrypto, and more.