Traders Cut Bets On Dovish Fed As Inflation Meets Expectations

Key Insights

• Inflation Rate decreased from 3.2% in October to 3.1% in November, in line with analyst consensus. 
• U.S. dollar rebounded from session lows as bears rushed to reduce their short positions after the release of the report. 
• SP500 pulled back from session highs but traders were not ready for big moves ahead of tomorrow’s Fed decision. 

On December 12, U.S. released inflation reports for November. Inflation Rate declined from 3.2% in October to 3.1% in November, while Core Inflation Rate remained unchanged at 4%. Both reports met analyst estimates.

Inflation data is especially important as Fed will release its interest rate decision tomorrow. Markets expect that Fed will leave the federal funds rate unchanged, so traders will be mostly focused on Powell’s comments.

U.S. Dollar Index moved from session lows after the release of inflation reports. It looks that traders expected that Inflation Rate would drop to 3%, while Core Inflation Rate would dip to 3.9%. When the report was released, such traders rushed to cover their short positions. Currently, U.S. Dollar Index is trying to settle above the 104.00 level.

Gold pulled back towards the $1980 level as traders focused on U.S. dollar’s rebound. Rising Treasury yields put additional pressure on gold markets. From a big picture point of view, the market sentiment remains bearish after an unsuccessful attempt to settle above the $2100 level.

SP500 pulled back from session highs as traders reacted to inflation data. Inflation did not fall faster than expected, so traders fear that Fed may not be dovish. However, it should be noted that the pullback was not significant. Currently, SP500 settled near the 4615 level. The market sentiment remains bullish, and Powell’s press conference is the only catalyst that can change the trend in the near term.

For a look at all of today’s economic events, check out our economic calendar.