Eastern time on Wednesday (May 10), the United States April consumer price index (CPI) data came out. According to data from the US Bureau of Labor Statistics, the US CPI in April fell to 4.9% year-on-year, expected 5%, the previous value of 5%, ushering in a "tenth consecutive decline" and lower than expected, up 0.4% month-on-month. Core inflation, which strips out volatile food and energy costs and has been stubbornly high over the past few months, edged down to 5.5 per cent year-on-year in April from 5.6 per cent the month before, or 0.4 per cent month-on-month. After data showed that U.S. inflation unexpectedly slowed down in April, the dollar turned lower, the dollar index fell more than 40 points in the short term, non-U.S. currencies continued to rise, and U.S. stock futures pulled up.

After the release of the data, various institutions have also interpreted, among which optimists believe that with inflation under control, the Federal Reserve will cut interest rates this year. The pessimists argue that inflation remains elevated, and with so much uncertainty about future credit conditions and debt ceiling risks looming large, officials may not react much to any single inflation report to justify current market expectations of a big rate cut by the end of the year.

pessimist

Richard Flynn, an analyst at Charles Schwab, said: "Today's drop in inflation will likely be welcomed by investors, who may speculate that the Fed's tightening of monetary policy appears to be working." However, inflation remains above the Fed's 2 percent target, so markets may be pricing in a rate cut too optimistically."

Brian Jacobsen, chief economist at Annex Wealth Management, said the April inflation number was in line with expectations. Tighter credit markets are likely to have only a gradual effect on growth and inflation. Inflation is still too high, so the Fed is unlikely to change its language. They will stick to the line that they have no intention of cutting interest rates. However, their views may change with the wind and the data.

Ingenium Analytics analyst Andre Backus said in the short term, that's not good enough for the market because it still leaves a question mark over what the Fed will do at its next meeting. This is not a report that the Fed can ease up on, so investors can be confident that clouds will remain over the market, which, combined with a slim lead for stocks and uncertainty around the debt ceiling, will cause some panic in the short term.

Overall US inflation slowed slightly in April, which could give the Federal Reserve room to pause interest rate hikes soon. U.S. consumer prices rose in April as gasoline costs and rents rose, while underlying inflation remained strong as used car prices rebounded, which could ensure the Federal Reserve keeps interest rates high for some time. The Labor Department said Wednesday that the consumer price index rose 0.4 percent, up from 0.1 percent the previous month. Gasoline prices rose last month after Saudi Arabia and other Opec + producers announced further production cuts, but oil prices have largely trended lower since then, pushing gasoline prices lower. The core CPI was boosted by prices for used cars and trucks, which rose for the first time since last June. Rents also continue to put upward pressure on the core CPI, but rental inflation is expected to ease as the rental vacancy rate rose to its highest level in two years in the first quarter. High inflation and a resilient labor market make it unlikely that the Fed will start cutting rates this year, as financial markets now expect.

optimists

"Fed voice box" Nick Timiraos writes that Fed officials were already leaning toward a summer pause before the April CPI data to see if enough had been done to slow the economy and inflation. This is made easier by the inflation report, which shows that price pressures are not worsening and may soon do so as the slowdown in rental costs starts to feed through to inflation measures. What's more, Fed officials will need time to observe the impact of recent strains in the banking system. To be sure, inflation hasn't shown a convincing slowdown, but Powell said six months ago that officials aren't necessarily thinking that only a slowdown in a set of inflation data is a prerequisite for the Fed to pause.

Deutsche Bank analyst Jim Reid said that in the Fed's 13 cycles, the median time between the last rate hike and the first cut was four months. The CME Fed Watch tool shows a 49 percent chance of a rate cut in September and another cut in November. "So, if May is the last rate hike, then based on the median/average historical level, the rate cut looks to September/October." "Given that the first rate cut is now fully priced at the November meeting (there was no meeting in October), it's hard to be too critical," Reid added. He noted that Deutsche Bank's forecast for a rate cut is the first quarter of 2024.

Will the US dollar enter a period of depreciation and non-US currencies and gold rise?

With no progress in the US debt ceiling talks, MUFG economists expect the dollar to remain weak, the bank said. Mufg believes that a short-term solution is the most reasonable at this stage. Suspending the debt ceiling until September 30 would allow simultaneous (but separate) discussions of the debt ceiling and the budget. The budget deal for next year can at least be seen in the context of the long-term fiscal policy needed to stabilise debt in terms of GDP. What remains clear and needs to be addressed is that the debt-to-GDP ratio is trending upward under current legislation and is therefore unsustainable. These issues even go beyond resolving the debt ceiling impasse and reinforce our long-term view of the dollar, which reached a long-term high last year and has now begun a period of depreciation.

Ubs economists predict that the dollar will weaken further and gold could rise to $2,200 an ounce by March 2024. As the Fed opens the door to a pause in rate hikes, other central banks, including the European Central Bank, continue to tighten policy. We expect the dollar to weaken further this year as the Fed is likely to cut rates earlier than other major central banks, eroding interest rates and growth premiums in the US. We still prefer the Australian dollar and the Japanese yen, while also seeing the relative value of the euro, Swiss franc and British pound. A weaker dollar should support gold prices, and we expect gold to rise to $2,200 an ounce by March 2024.