The US consumer price index (CPI) climbed 3.1% year-on-year in November, down from 3.2% in October and in line with the market estimate of 3.1%.

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Core CPI, which excludes food and energy and is considered a more reliable gauge of inflation trends, climbed 4.0% year-on year in November, unchanged from October. This matched the market estimate of 4.0%.

On a monthly basis, both CPI and Core CPI ticked higher. CPI came in at 0.1%, up from 0.0% in October while the core rate rose from 0.2% to 0.3%. Both readings matched the market estimates. A decline in gasoline prices helped pull down inflation. However, a wide range of goods and services experienced price increases, suggesting that inflation remains sticky.

The Federal Reserve’s rate-tightening cycle is likely over, with the markets pricing in the likelihood of a pause at today’s rate meeting at close to 100%. If the inflation report had been a softer than-expected inflation report, it may well have forced the Fed to signal a shift from its hawkish stance at today’s policy meeting. However, the inflation release was largely as expected, which means that the market’s focus will shift to the Fed’s rate statement and post-meeting comments from Federal Reserve Chair Jerome Powell.

There is a deep disconnect between the Fed, which has stuck to a “higher for longer” stance on rates, and the markets, which have priced in up to four rate cuts in 2024. The Fed has been pushing back against rate cuts expectations, especially with inflation still well above the Fed’s 2% target. If Powell comes out swinging and pours cold water on rate cuts, the US dollar could respond with strong gains.

US Dollar Holds its Ground, Stock Markets Higher After Inflation Report 

The US dollar showed a limited reaction to the inflation report while US stock markets posted gains.

Against the major currencies, the US dollar initially posted slight losses after the inflation release but then recovered. On Thursday, the EUR/USD and GBP/USD currency pairs are steady but the NZD/USD currency pair has declined by 0.60%.

US stock exchanges posted gains on Tuesday. The S&P 500 Index climbed 21.26 points (0.46%) to close at 4,643.70.

The Nasdaq 100 Index rose 132.51 points (0.82%) to close at 16,354.25.

Both indices closed at their highest levels in almost two years.

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