US Inflation Holds Steady as Fed Hike Odds Rise
US consumer price inflation remained at 3.4% year-on-year in August, matching market expectations. This data pushed the probability of a Federal Reserve rate hike to 87% by Wednesday.
US consumer price inflation held steady at 3.4% year-on-year in August. The monthly increase was 0.4%, aligning with consensus forecasts from FXStreet. Core inflation, excluding food and energy, cooled to 2.4% annually. However, core prices rose 0.3% month-over-month, exceeding the expected 0.2%.
Market pricing for a Federal Reserve rate hike surged to 87%. A day earlier, the probability stood at 72%. Barclays analysts maintain their call for a 25 basis point increase at the September meeting. They view the August data as supportive of this move despite some one-off factors.
Equities Rise Despite Rate Hike Expectations
The FTSE 100 index closed up 41.52 points, or 0.4%, at 10,650.44. This marked the index's worst weekly performance since July, down 1.7% on the week. The FTSE 250 added 89.79 points to reach 23,975.73. European peers in Paris and Frankfurt both gained 0.8% on Friday.
In New York, the S&P 500 rose 1.1% and the Nasdaq Composite surged 1.3%. The Dow Jones Industrial Average climbed 1.0% at the London close. US government bond yields retreated from earlier highs, facilitating the equity rally. The 10-year Treasury yield stood at 4.93%, down from a peak of 4.99%.
Sterling Weakens Against US Dollar
The pound traded at 1.3523 US dollars on Friday. This represented a decline from 1.3532 dollars on Thursday. Against the euro, sterling strengthened to 1.1648 from 1.1636. The euro fell to 1.1605 dollars from 1.1625. The Japanese yen stood at 153.58 per dollar, down from 154.10.
Analysts Debate Next Fed Move
Oxford Economics analyst Bernard Yaros described the upcoming decision as a knife's edge. He noted that the Fed's preferred inflation measure may prove more benign than core CPI. ING views a potential hike as a recalibration move rather than the start of a cycle. The Bank of England is not expected to hike rates on Thursday, unlike its US counterpart.
GN markets/policy (en-US) reports that the data supports a hawkish stance. Yet, uncertainty remains regarding the duration of any tightening cycle. Market participants await the Federal Reserve decision on Wednesday. The focus now shifts to the Bank of England's policy announcement the following day.
