USD falls sharply after US inflation data

Market participants paid attention to yesterday's CPI numbers. First, the CPI met expectations, printing 7% year-on-year, the highest since June 1982. That was the 19th straight monthly rise in CPI inflation. 

At the same time, the core CPI also surged and reachest the highest level since February 1991 (printing hotter than expected at +5.5% yearly). Next, shelter inflation rose to 4.13% YoY, up from 3.84%, the highest since February 2007 (the bubble that took down the global economy). 

Later today, the PPI indices will be released, expected to continue climbing higher, with the year-on-year change forecast to nearly hit double digits at 9.8%.

However, it looks like all the monetary policy tightening could already be priced in as both the USD and US yields fell after the CPI report, bringing the EURUSD pair to two-month highs at 1.1470.

On Tuesday, Fed Chairman Jerome Powell dampened overly aggressive tightening expectations in his renomination testimony, stating that the Fed was still debating the time frame involved in reducing the central bank's balance sheet. On the other hand, the recent FOMC minutes suggested that the central bank could start reducing its balance sheet this summer.

Elsewhere, US equities rose notably yesterday, and it looks like the correction might be over. Or is it only a dead cat bounce? We shall see soon enough.