The broad MSCI Emerging-Market Currency Index fell less than 0.1% in New York while the dollar bounced back from a brief loss, gaining 0.1%. Treasury 10-year yields rose the most since Dec. 18, with traders projecting the Fed will only cut rates in December.
“Markets are digesting that the Fed’s ‘restrictive’ moment may last longer than risk markets wished,” said Juan Perez, director of trading at Monex USA. “Rate cuts are just not ideal if prices are this stubborn.”
US inflation data released early Wednesday showed that the monthly consumer price index rose in January by the most since August 2023, while so-called core CPI – which excludes food and energy costs – climbed 0.4%, more than forecast. Traders shifted bets on the timing of the Fed’s next rate cut to December from September, lifting US Treasury yields. In testimony before Congress, Fed Chair Jerome Powell said the data showed that while the central bank has made substantial progress toward taming inflation, there is still more work to do.
“He seems to have brushed off the upside surprise from today’s CPI print, limiting the likelihood for a rate hike in the near-term,” said Dan Pan, an economist at Standard Chartered Bank.
Eastern European assets were among the best performers after President Donald Trump said he spoke with Russian President Vladimir Putin and agreed to begin talks on ending the war in Ukraine. Oil, meanwhile, sank following the news. “Markets welcomed good news in the form of potential negotiations for some sort of peace in Ukraine,” said Perez, of Monex.
The MSCI index for developing-markets stocks rose 0.6%. Earlier, Alibaba surged following reports of the e-commerce firm’s collaboration with Apple Inc. on AI development.
In debt markets, Ukraine dollar bonds rose after Trump’s conversation with Putin. The strong performance also comes ahead of Treasury Secretary Scott Bessent’s visit to meet President Volodymyr Zelenskiy as part of US efforts to end the war.
