Dollar holds CPI gains as Fed hawks and soft 10-year auction lift yields

More Federal Reserve officials joined the hawkish chorus after the hot US October CPI report, keeping the case for a bigger December hike alive. A soft 10-year Treasury auction that cleared at 5.02% added to the pressure on yields, while overnight data from Japan and Australia pulled the yen and the Aussie in opposite directions.

What moved and why

The main story since our last recap is the follow-through from Fed speakers. According to the investingLive Americas wrap, Fed Governor Bowman said persistent inflation and firming labour conditions suggest there is "work to do". Kansas City Fed President Schmid pointed to "some concerning trends in prices, underneath the whole energy story". The same wrap reports that US stocks sold off on the CPI data and that Nvidia fell another 6%.

Investing.com reports that the dollar jumped as the hot CPI and Governor Waller's comments brought a supersized Fed hike into play. As a reminder, investingLive showed core CPI up 0.3% against 0.2% expected and headline up 0.4% against 0.3% expected.

The bond market added to the move. The US Treasury sold $42 billion of 10-year notes at a high yield of 5.02%, investingLive reports. The auction tailed by 1.0 basis point against an average of minus 0.6 bp, and the bid-to-cover was 2.46 times against a 2.60 average. investingLive graded it D+ and called it "a little soft".

The majors

The table below uses the ECB reference rates from the 10 November fixing, compared with the 9 November fixing. It is a once-a-day reference point and may not capture the full post-CPI reaction that Investing.com described.

The dollar was mixed at the fixing. It firmed against the yen, the franc and the Canadian dollar but slipped against the euro, the pound and the antipodeans. Over five fixings, USD/CAD is up 1.15% and AUD/USD is down 1.15%, the two biggest moves in the group. For background on why single fixings can differ from intraday trade, our sister site explains how market liquidity shapes forex moves after the CPI.

Central banks and data in the news

• Bank of Canada: Minutes show the Governing Council sees a possible need to hike rates further, according to the investingLive Americas wrap.
• Japan: The Reuters Tankan manufacturer index rose to +27, the highest in over five years, led by chips, investingLive reports. investingLive says this could support expectations of further Bank of Japan tightening, which it calls supportive for the yen.
• Australia: Investor home lending plunged 32% in the third quarter, according to investingLive. The outlet says this supports the case for an RBA pause after five hikes this year and is a modest headwind for the Australian dollar.
• ECB and BoE: ECB chief economist Philip Lane gave a speech on monetary policy communication, and Piero Cipollone spoke on cash and the digital euro. The Bank of England published its November exchange of letters on the Asset Purchase Facility.

What to watch next

1. Fed December meeting: Bowman, Schmid and Waller have all leaned hawkish. Further Fed comments will test how far a 50 bp hike is priced.
2. Bank of Canada: The minutes leave further hikes on the table, which matters for USD/CAD after its five-fixing climb.
3. RBA and BoJ: Housing weakness in Australia and strong Japanese sentiment point the two central banks in different directions, according to investingLive.
4. Nvidia earnings: investingLive's European wrap flagged an earnings preview, and the stock's slide has fed risk sentiment.
5. US-Iran developments: investingLive notes renewed US-Iran deal hopes weighed on crude, though it says no concrete breakthrough is in sight.

Track the dollar index on the DXY chart.