A drop in US inflation sends USD down, Nasdaq and Dow up

[MongiIG]

With both the core and the headline rate of consumer price inflation coming in lower than expected in the States, we look at the effect on the dollar and the stock market.

 Jeremy Naylor | Writer, London | Publication date: Thursday 10 November 2022

US inflation rates have come through lower than expected, both at the headline and the core rate, and what this has done is it's sent the dollar down and stocks up, and the markets are now pricing in the possibility of just 25 basis points now from the Federal Reserve (Fed) when it meets in mid-December just before that Christmas to New Year break.

EUR/USD

That would certainly be a good line to take going into that meeting. And if we take a look at what's been happening first of all on the EUR/USD because we've got a rise here in the euro.

We're now just off the highs - we're touching this rising line of resistance. We've got this rising line of support in place now so it's a channel and we are now looking as though were comfortably above that parity level, currently trading at 10131.

The inflation headline rate coming at 7.7%. Now that's down from 8.2%. We were expecting an 8% reading. The core inflation, stripping out food and fuel, has come in at 6.3%. We have been looking for a 6.5% reading there.

Stock market

Now what this has done is it's seen money going into the stock market and this is the Dow Jones Industrial Average.

IG chief market analyst, Chris Beauchamp, suggesting this is the opportunity now for this bear market rally really to lift off as we go into the back end of the year, we're got about six weeks or seven weeks to go before the end of the year.

But with this inflation rate showing a lower print, we do have now this bit of a relief rally underway so far as tech stocks are concerned. Now this is an area of the market where we've seen a lot of underperformance. You can see now we've got a bullish engulfing candle here as well today on the Nasdaq one-day chart.

Now you don't know how this is going to develop until you get the next day. So we won't really know whether this is going to be the start of a new sort of mini-upside here until we get tomorrow's candle to work out whether this really is a a bullish engulfing candle, but you can see what the rise of 3.6% on the tech-heavy Nasdaq.

Even tech stocks are getting a lift from this news out today that inflation in the US is looking as though it's beginning to start to turn south.