Is a slowing US inflation read the start of the USD’s decline? Are we starting to see the crown falling from the king of all currencies?

Before we answer this check the read: US CPI in October rose 0.4 per cent month on month and 7.7 per cent year on year, big undershoots on consensus of 0.6 per cent month on month and the 7.9 per cent year on year.

For us the figure that should matter more is Core CPI. At 0.3 month on month and 6.3 per cent year on year it to undershot consensus which came in at 0.5 per cent month on month and 6.5 per cent year on year.

These where significantly larger deceleration than expected. Remember in September CPI was 8.2per cent and core CPI what is 6.6 per cent year on year.

All this is stoking the markets view that inflation has peaked and that the Fed may now start to slow the pace of tightening. Thing is though 7.7 per cent is still 7.7 per cent and the impact this has on purchasing power is still very, very high. And therefore, we must remember that slowing is still tightening, there are signs now that may be long term yields will fall and that maybe that will be the signal the USD king is dead.

But until then remember the Board is as hawkish as it has ever been. Here was just some of the Fed speak post the CPI release

San Francisco Fed president Mary Daly noted the CPI report is “one piece of positive information” but “very limited relief,” and “far from a victory”. “The FOMC must be resolute on bringing inflation back down to 2% and will continue adjusting rates until the inflation job is fully done.”

Daly has said the current discussion is about “stepping down, not pausing” and there is a lot of debate about what is a “sufficiently restrictive rate.”

Dallas Fed president Lori Logan said the report was “welcome relief” but like Daly highlighted the FOMC’s focus remained restoring price stability. Slowing the economy is appropriate, and there is still a long way to go. Also like Daly, she is open to the idea of slowing the rate of rises.

All this tied a stone to the USD

EUR/USD surged from $0.9965 be back about parity at $1.0190,

GBP/USD hit its highest level since the Truss administration’s failures shifting from $1.1410 to $1.1710.

AUD/USD rose from $0.6415 to $0.6620.

But all eyes were on yield sensitive USD/JPY a trade we have been highlighting all year. USD/JPY collapsing fell from ¥146.10 pre-data to ¥141.25. Is this the signal for the end of the USD trade? We are not so sure we want confirmation from the FOMC which makes the December meeting even more important than before.