US dollar dives most in decade as investors cheer after inflation misses forecasts

SINGAPORE – The US dollar languished on Friday after the country’s inflation data came in cooler than expected, raising market hopes that inflation may have peaked and that the Federal Reserve will begin scaling back its hefty interest rate increases.

Figures showed that the consumer price index (CPI) rose 7.7 per cent year on year in October, the smallest gain since January and below forecasts of an 8 per cent increase.

The dollar tumbled overnight after the release, and recorded its worst day against the Japanese yen since 2016, having fallen 3.7 per cent. It has since clawed back some of those losses and last rose 0.53 per cent to 141.69 yen.

Sterling saw its best daily gain since 2017, jumping more than 3 per cent overnight, along with the Australian dollar, which surged close to 3 per cent, its largest increase since 2011.

The Singapore dollar also strengthened slightly against the greenback to $1.38.

Against a basket of currencies, the United States dollar index slumped more than 2 per cent overnight, the most in over a decade. It last stood at 108.06.

“The overnight moves in the dollar were pretty sharp... I do think the results in the US CPI for October will support the case for a downshift in the FOMC rate hike in December,” said currency strategist Carol Kong at Commonwealth Bank of Australia, using the abbreviation for the Federal Open Market Committee.

“The Japanese government officials will certainly be happy about the drop in dollar/yen overnight... it was mainly driven by the sharp drop in US Treasury yields.”

US Treasury yields moved decisively lower overnight as investors revised down their expectations of where US rates could peak, with the benchmark 10-year Treasury yield slipping below 4 per cent to its lowest in over a month.

In early Asia trade, the dollar was fighting to recoup some of its losses, with the euro last 0.31 per cent lower at US$1.0179, after rising nearly 2 per cent overnight. The New Zealand dollar edged 0.43 per cent lower to US$0.6001, following a 2.4 per cent overnight gain.

The pound clung to most of its overnight gains and was last down 0.32 per cent at US$1.1673, while the Aussie slipped 0.42 per cent to US$0.65915.

Fed funds futures show that markets are pricing in a 71.5 per cent chance of a 50 basis-point rate increase and a 28.5 per cent chance of a 75 basis-point increase at the Fed’s December meeting.

“There were flickers of encouragement in the October CPI release, but this pattern would need to be repeated in coming months for confidence to grow that inflation will moderate towards trend over the Fed’s forecast horizon,” said economists at ANZ.

Also at the top of investors’ minds on Friday was the ongoing turmoil in the crypto world after crypto exchange FTX’s fall from grace.

FTX is scrambling to raise about US$9.4 billion (S$13 billion) from investors and rivals, a source told Reuters. Various institutional investors and officials have also since spoken out on the matter.

Cryptocurrencies remained under pressure, with FTX’s native token, FTT, last 5 per cent lower at US$3.537, having fallen nearly 90 per cent in the month to date.

Bitcoin fell 0.3 per cent to US$17,501, after plunging below US$16,000 for the first time since late 2020 earlier in the week. REUTERS