The US dollar index or it is also known as DXY Skyrocketed more than 0.6% to a range of 105.25 in the middle of Friday's New York session.
The PCE price index as the main inflation benchmark in the Fed's decision-making, experienced a fantastic rise in key and core data components. This becomes a good news for some market participants.
The Personal Consumer Expenditures (PCE) report shows the growth of the main and core compact PCE price indices. Those reach 0.6% for month-over-Month in January 2023.
The figure exceeded the consensus estimate pegged at 0.4%. It happened while signaling an end to the ongoing downward trend in PCE inflation over the past few months.
Dollar Rates and Bond Yield Skyrocketed
The Measurements on an annual basis For year-over-Year also rose. The main PCE price index increased from 5.3% to 5.4%, while the core climbed from 4.6% to 4.7%.
Traders and investors immediately responded to the release of the PCE price index this time. They responded by recalculating the Fed's future interest rate projections to be more hawkish.
The Wall Street stock markets tumbled, while bond yields and dollar rates skyrocketed. The most noticeable change was seen in the yield of US Treasury bonds.
Based on a release, the 2Y US Treasury yield reached a level of 4.77% as the highest level since October. The 10Y US Treasury yield has not been unmoved much, but it still inhabits the highest range since December.
With that strong public spending, inflation will prove stronger than initially expected. It was said by Kathy Jones, ahead of fixed income strategy at Charles Schwab.
High Interest Rate can be Higher
The market where in this case is the majority at the moment, still reckons the Fed's peak interest rate in the 5.25%-5.5% range. However, expectations of that high interest rate are getting higher and higher.
Furthermore, the Fed officials previously hinted that they would raise rates by another 25 basis points at the next FOMC meeting on March 21-22, 2023.
However, the market is currently placing a 40% probability of a 50 basis point rate hike at the FOMC meeting. In fact, there is a nearly 9% chance for the highest interest rate to reach 6.0% by next July.
The rivals of the US dollar fell in unison. AUD/USD and NZD/USD have each posted declines of more than 1% in day trading. GBP/USD is mired about 0.5% towards its lowest range this year.
USD/JPY Soared by 1.2 Percent
Elsewhere, the EUR/USD pair also continued to depreciate in the range of 1.0555. Meanwhile, USD/JPY soared by 1.2% to the 136.40s.
The USD/JPY rate posted a fantastic gain of around 1.2 percent to the 136.40s range in Friday's New York session trading. The appreciation of the greenback and the rise in the Fed's interest rate projections contributed the most to the rally.
It is as did market disappointment at the attitude of the future head of the Central Bank of Japan (BoJ). Japan's core inflation data this morning showed an increase in expectations from 4.0 percent to 4.2 percent.
That was year on year for the January 2023 period. However, the hike has not been able to urge BoJ officials to be more hawkish.
Raw Material Price Affects the Inflation
Kazuo Ueda, the strongest candidate to succeed BoJ Governor Haruhiko Kuroda, told the Japanese Parliament that the current low interest rate is appropriate.
He argued that Japan's current rise in inflation is mainly due to a surge in the price of raw material imports and not due to strengthening domestic demand. That is why; interest rates must remain low.
That is essential in order to encourage an increase in inflation that is in line with the central bank's target. Analysts immediately responded to his views by revising the yen's projections going forward.
Lee Hardman, a senior currency analyst at MUFG, thinks the yen is in danger of weakening. After breaking through the 135.00 threshold, the USD/JPY rally may continue until the 200-Day MA.
