Forex Today: Dramatic U-turn after US inflation misses expectations

What you need to take care of on Friday, October 14:

US inflation put market players on their toes on Thursday and was behind some wild, volatile moves.

According to the official release, the US Consumer Price Index was up by 8.2% YoY in September, above the 8.1% expected, although easing for a third consecutive month. The core annual inflation, on the other hand, reached a fresh multi-year high of 6.6%.  The initial reaction to the news was negative. Wall Street plummeted, yields soared, and the dollar surged. However, markets changed course after the opening bell, and the greenback ended the day with losses against most major rivals.

Fed swaps fully price a 75 bps rate hike in November and a peak policy rate of 4.85% in March 2023. Pretty much the same picture that we had before the release, partially explaining equities comeback. No news was seen as good news after second thoughts.

Additionally, there was again noise coming from the UK. Rumors and back and forth about the United Kingdom’s mini-budget ended, favoring the Pound demand and adding pressure on the American currency. Speculative interest now believes there won’t be tax cuts, while there were market talks pointing out exactly the opposite.  Chancellor of the Exchequer, Kwasi Kwarteng, was expected to make an announcement, but he ended up saying there would be more details on the budget on October 31.

On a down note, things between Russia and Ukraine are going no better. Russia said Ukraine's accession to NATO could ignite a third-world war. Also, coronavirus-related restrictions in Shanghai, China, fueled fears of another massive lockdown in the region. Meanwhile, German Health Minister Karl Lauterbach calls for the reintroduction of mask mandates, citing a "sharp increase" in covid cases.

EUR/USD trades around 0.9770, while GBP/USD holds on to substantial gains around 1.1315. Commodity-linked currencies plummeted ahead of Wall Street’s opening but managed to post gains against the dollar. AUD/USD hovers around 0.6300 while USD/CAD is down to 1.3740.

USD/JPY reached a fresh multi-decade high of 147.66. Investors fear a potential BOJ intervention after the pair resumed its advance.

Gold finished the day in the red, despite off its intraday low, now trading around $1,663 a troy ounce. Crude oil prices were up, with WTI now changing hands at around $89 a barrel.

Wall Street was extremely volatile. The Dow Jones Industrial Average added roughly 850 points after trading over 500 points in the red ahead of the US inflation release. The S&P 500 and the Nasdaq Composite added over 2% each.

The Asian session will bring Chinese inflation and trade data, which could affect the market’s sentiment. Later on Friday, the US will publish US Retail Sales.

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