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Yen soars after US inflation surprise

Yen soars after US inflation surprise


The Japanese yen has skyrocketed in today’s North American session. USD/JPY traded at 141.81, a decrease of 3.1%.

Inflation in the US drives down the dollar

The US dollar was in a massive uptake after the October inflation report came out lower than anticipated. The yen jumped on this bandwagon and has reached its highest point since September 22nd.

Inflation didn’t exactly tumble, but investors seized on the fact that both the headline and core readings were lower than projected, raising hopes of a soft landing for the economy. CPI headline dropped to 7.7% in September from 8.2%, below the consensus of 8.0%. Core inflation declined to 6.3%, compared with 6.6% in September and was below the forecast of 6.5%.

Rate pricing is now in crisis because of the surprising low numbers. The markets had previously priced in 55% for an increase of 50 bp and 45% for an increase of 75 bp. The market has now changed to 80-20 for a 50-bp increase, which has caused the dollar to retreat. Despite the festive mood on Wall Street today, the Fed hasn’t turned dovish – a 0.50% rate hike is still a sizeable move, and the terminal rate could end up being as high as 5.50%

The yen has steamrolled the dollar today, but will this be just a blip in the yen’s…

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