The US Dollar traded up to fresh 2018 highs this week following the release of the latest inflation data which posted its biggest increase in nine months.
Headline CPI inflation rose 2.5% year on year in October, jumping up from the prior 2.3% reading in September.
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The data shows that the increase was predominantly fuelled by a pick up in the cost of gasoline and rent.
Similarly, core CPI (which excludes food and energy) rose 2.1% over the same period which was slightly down from last month’s 2.2% reading and below expectations of another 2.2% reading this month.
However, with both readings remaining above 2%, the data has further bolstered the market’s expectation of another Fed rate hike in December.
With unemployment at its lowest level in 49 years and domestic demand remaining strong, inflationary pressures are alive and well in the economy and the Fed’s projected course of one further rate hike this year, with three more to come in 2019, currently looks intact.
Furthermore, the PCE index, which the Fed actually relies on more as a real gauge of inflation, has consistently risen at 2% each month over the last five months
The Index has now broken out above the former 2018 high of 96.91. If we can hold above this level, the next key zone to watch will be the 100 level where we have structural resistance with two, big former highs as well as the completion of a symmetry swing (mapping the last swing into the 2016 high).