Dollar Stable Ahead of US Inflation Data; Fed Concerns Grow
Translated & summarized from Calcalist by baba
The foreign exchange market showed stability on Tuesday, with the dollar trading near 3.16 shekels ahead of US inflation data. Federal Reserve officials, including Austan Goolsbee, expressed concern over persistent inflation, partly driven by AI data center construction, and the rising cost of living. Markets anticipate an interest rate hike by the Fed in December, with an over 80% probability priced in.
The story in 5 lines · by baba
- The dollar traded around 3.16 shekels amid calm in the foreign exchange market.
- US inflation data for October is expected later today, with forecasts showing a slowdown.
- Federal Reserve officials are concerned about persistent inflation and the rising cost of living.
- The construction of AI data centers is seen as exacerbating inflationary pressures.
- Markets are pricing in an over 80% chance of a Fed interest rate hike in December.
The foreign exchange market experienced a period of calm on Tuesday, following a decline in the US dollar the previous day and in anticipation of the release of October's US Consumer Price Index (CPI) later in the day. Locally, the dollar saw a slight increase of 0.1%, trading just below 3.16 shekels, while the euro rose by 0.2% to trade above 3.54 shekels.
Globally, the US dollar index remained unchanged at 101.8 points against a basket of major currencies. The euro was stable, trading above $1.12, and the pound was also steady, trading above $1.34.
US inflation forecasts suggest a 0.3% monthly increase in the CPI for October, down from 0.6% in September. The core CPI, excluding food and energy, is projected to rise by 0.2%, a decrease from the 0.3% increase seen in September.
Federal Reserve officials have recently expressed concerns about the persistent effects of tariffs and the war in Iran, noting that price pressures are emerging in sectors not directly impacted by these events. While the Fed is confident about the labor market, concerns about the rising cost of living are a top priority. Austan Goolsbee, President of the Federal Reserve Bank of Chicago, stated that the current inflationary trend is unusual and is being exacerbated by the construction of data centers for artificial intelligence by major tech companies. He noted that inflation is accelerating in areas seemingly unaffected by oil prices and tariffs, such as various services, and described the situation around data center construction as a familiar demand-driven overheating.
Following the Fed's decision to hold interest rates steady in October, markets are pricing in an over 80% probability of a quarter-percentage-point rate hike at the upcoming December meeting. Goolsbee, who will have a vote on the Federal Open Market Committee in 2027, did not specify his stance on further rate increases but indicated that current conditions might warrant action, emphasizing the need to act decisively to prevent the economy from overheating.