Wall Street equities rallied and Treasury yields plunged after signs of sharply decelerating U.S. inflation prompted bets that the Federal Reserve would raise rates at a slower pace than previously expected. The dollar also tumbled after U.S. data showed that consumer prices did not rise in July as the cost of gasoline fell, delivering the first notable sign of relief for Americans who have watched inflation soar over the past two years. Traders are now pricing in a 50 basis points rate hike next month, not the 75 basis point increase that had been expected before the consumer price index report.
Stocks and bonds steadied on Wednesday, while the dollar edged lower ahead of U.S. inflation data that could give clues to the Federal Reserve's appetite for more aggressive rate rises. The Consumer Price Index (CPI) report will be released at 1230 GMT, with markets watching for signs that inflation eased in July despite unexpectedly strong U.S. jobs numbers last week. The market is pricing in a 69.5% chance of a 75 basis point rate increase at the Fed's next meeting.
Stocks trembled on Wednesday while major currencies held steady as investors were reluctant to place bets ahead of the release of U.S. inflation data that could point to the Federal Reserve's appetite for more aggressive rate increases. The market is pricing in a 69.5% chance of a 75 bps rate increase at the Fed's next meeting. Economists polled by Reuters expect the CPI to show year-on-year headline inflation of 8.7%, far above the Fed's target of 2% but down from last month's red-hot 9.1%.