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Dollar Index: Daily Analysis & Fundamental Forecast

Asian stocks leapt while the dollar was nursing its heaviest losses in a year on Wednesday, as steady U.S. inflation figures boosted investor confidence that the Federal Reserve was done hiking interest rates and may start cutting early next year. U.S. headline consumer prices were flat in October, against expectations for a 0.1% rise. Core CPI, at 0.2%, also came in below a forecast of 0.3%.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was up 1.9% in early trade. Japan’s Nikkei (.N225) was up 1.8%. Overnight the Nasdaq (.IXIC) jumped 2.4%, bonds surged and the dollar slumped more than 1.6% on the euro. Interest rate futures swung sharply higher as traders priced out any chance of further rate hikes and foresaw a cut as early as May, with some chance it could come even sooner, in March. Two-year Treasury yields , which closely track short-term rate expectations, dived more than 22 basis points (bps) on Tuesday and held steady at 4.84% in Tokyo trade on Wednesday. Ten-year yields fell 19 bps overnight and touched an almost two-month low of 4.43% in Asia, having tumbled below support at 4.5%. Yields fall when bond prices climb.

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