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U.S. Inflation To Force The Fed Into Play

The US inflation report noted higher-than-expected price rises, triggering a boost to the dollar and a pullback in US major index futures.

US inflation data.

US inflation data.

The for January rose 0.6% to an of 7.5%. The report dashed hopes that the monthly price increase was slowing, as analysts expected a slowdown to 0.4% after December's 0.5% jump.

The added another 0.6% last month, to 6.0% y/y, the highest level since August 1982.

Thus far, there are few signs of a slowdown in inflation which requires the Fed to take active steps to tighten monetary policy. As might be expected, the stronger-than-expected rise in prices caused a sell-off in US equity futures, with the losing 2% and the 1.3%.

Core CPI rises to highest since 1982

Core CPI rises to highest since 1982

The immediately gained 0.4%. For the dollar, the current inflation report could be the starting point for a new upward momentum as it virtually unleashes the Fed for a high-profile first move with a key rate hike of 50 points in five weeks.

Rising inflation above expectations and new signs that the inflation trend is taking root could reinforce dollar purchases as markets will immediately put into the price a higher chance of a 50 point rate hike in March and set up a determination for further hikes. And that promises to be bad news for the markets.

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