The data on the US Producer Price Index confirmed that inflation had peaked. The PPI followed the CPI reading and marked a substantial drop compared to what was expected by market analysts
But the debate about whether the Fed should continue with aggressive interest rate hikes or not still goes on in the market.
Some people still favor the Fed to hike the rates because inflation is still high, despite the recent price data. The figures are insufficient for the Fed to slow down the rate increases. The messages transmitted by some Fed members in the last two days do not point to any change in the central bank's approach. The objective remains the same: to put an end to inflation. But, indeed, they have also shown the intention of not causing a recession, which may indicate that the next increases will be lower. Now, the market expects a rate increase of 50 bps in the next meeting and not 75 bps as was expected before the publication of the CPI and PPI.
After a pullback following yesterday's PPI release, bond yields rebounded above 2.80% mid-session. This movement was reflected in the stock indices that began the session with gains of over 1% and then fell back after the rise in market interest rates.
In any case, what is certain is that the risk sentiment has improved notably, and the short position held by most hedge funds could be in danger.
From a technical point of view, the latest advances of the Wall Street indices have taken them to positions that can already be considered the beginning of a bull market. Especially the S&P500 is already trading above the 100- and 200-day moving averages.
The US Dollar has also weakened after the data, although more marginally yesterday.
EUR/USD traded up to the 1.0358 level yesterday, which is the 0.618% Fibonacci retracement of the last leg down. Above this level, the pair would gain bullish traction and head towards the 1.0600 zone.
Sources: Bloomberg, Reuters
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