Falling inflation spells end to central bank rate hikes

We unpack the recent inflation developments, focusing on the disappointing October US and UK CPI reports. These both fell short of market expectations, leading to no shortage of volatility in markets. US headline inflation dropped sharply to 3.2%, while monthly inflation failed to rise for the first time since July 2022. This, coupled with a two-year low in the core measure, all but cemented expectations that the Federal Reserve is done with its hiking cycle. The result was a sharp sell-off in the dollar, which fell by more than 2% against its major peers. EUR/USD is trading at August highs above $1.09, while sterling has climbed back above the $1.25 level, despite last week’s drop in UK inflation.

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