No surprises in the latest US consumer price report helped buoy money markets, but that doesn’t tell the full story.
Bonds and the Australian dollar climbed in a relief rally after US inflation figures came in as expected even though the outcome gave little clarity on the Federal Reserve’s interest rate path.
The US two-year Treasury yield, which reflects interest rates, slipped 13 basis points to 3.91 per cent and the 10-year return shed 9 basis points to 3.43 per cent. Australian bond yields drifted lower in sympathy, with the three-year rate at 3.1 per cent, and the 10-year return at 3.4 per cent.The greenback initially fell on expectations the Fed would pause its interest rate increases to curb inflation, before unwinding losses to end the session where it started.
“The way that the Fed and other central banks are talking is the polar opposite of cutting interest rates,” he said. “For that to happen, it would be a very big change in rhetoric and I couldn’t imagine that equities and risk markets are going to be in the same position as what they are today.” Financial markets are now awaiting the Bank of England’s rate decision later on Thursday. It is widely expected to increase the policy rate by a quarter of a point to 4.5 per cent for a 12th time to tame stubbornly high inflation that is double that of the US.
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