Sharp sell-off of the US dollar was related to the release of weak macro data. Later on, Bullard in an interview with the Wall Street Journal sounded slightly hawkish, although he suggested stopping the hikes at the level of 5%:
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December projections suggest interest rates will rise to 5.25-5.5% range
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Interest rates must be higher, they are not yet at a restrictive level
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Interest rates must rise to 5%, and then the Fed should react to the data
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Core inflation is still high, above market expectations
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The market is overly optimistic about the recent inflation drop
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We are seeing a slightly better state of the global economy, which may lead to higher commodity prices
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Growth in the second half of 2022 in the US higher than expected
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The chances of a soft landing have increased significantly
Of course, we have a lot of hawkish remarks, but doves will also find some support. The statement about raising the interest rate to 5% as soon as possible and the subsequent observation of the data suggest that in case of a strong drop in inflation further interest rate hikes could be paused (temporary or permanently).
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EURUSD pulled back from 1.0900 thanks to Bullard's hawkish statements. However, after today's data, the chance for a 25 bp hike in February is very high. Currently the market is pricing in a 91% chance of a 25 bps hike next month. Source: xStation5
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