Scorching inflation report, done deal for Fed to go 75bp in Sept and probably also in November, dollar surges, bitcoin plunges

US stocks are crumbling after a very hot inflation has Wall Street nervous that they were too optimistic in forecasting the end of the Fed’s tightening cycle. ​ Markets are no longer confident that the Fed will only deliver a 75bp increase this month, a half-point increase in November and a 25-basis-point increase in December. The Fed will likely have to be even more aggressive with raising rates and that is bad news for risky assets. ​ Core inflation was scorching hot, coming in double expectations. ​ Fed fund futures are also showing some traders might argue that they could raise rates by a full-point at the September 21st FOMC meeting.

CPI

Inflation is not easing as many were hoping. Everyone knew that the drop in gas prices should help the August inflation report but core inflation is proving to be stubbornly high. ​ Inflation remained robust across food, shelter, medical care services, and new vehicles prices.

This inflation report killed any chance of a downward shift in Fed tightening as core goods and services pricing pressures remain hot. ​ It doesn’t seem companies are offering significant discounts here to lower inventories. ​ ​ ​

FX

The US dollar got its groove back after hot inflation boosts Fed rate hike expectations. It looks like the currency traders were a little too optimistic with when the Fed could start pausing their rate hiking cycle. ​ Treasury yields are skyrocketing as investors anticipate much more aggressive Fed tightening after the hotter-than-expected inflation reading.

Bitcoin

A scorching inflation triggered a stock market selloff that is also dragging bitcoin along for the ride. Hopes of a soft landing, the end of the Fed hiking cycle, and a resilient consumer, are fading away. Bitcoin’s plunge reminded traders it remains the ultimate risky asset and is vulnerable if stock market selloff deepens.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya