The United States inflation report for December 2022 shows below-zero monthly growth. That is why; market participants are increasingly confident that the Fed will stop its rate hike cycle in the first quarter of this year. 

Consequently, the US dollar rate landslide in New York session trading on Thursday. The USD index or DXY fell nearly 1 percent to the 102.30s. Meanwhile, the USD/JPY pair plunged more than 2 percent to the 129.60s. 

Elsewhere, EUR/USD skyrocketed to the point of 'kissing' a nine-month high of 1.0838. It can be seen that US Inflation Trend Declining Sustainably. The United States inflation data was recorded at -0.1% for month over month in December 2022. 

Firs Negative Monthly CPI Rate Happened 

Economists had previously forecast zero percent growth. This is the first negative monthly CPI inflation rate since May 2020. The data also reflects a solid and sustained downward trend.

It comes with the annual inflation rate dragging from 7.1% to 6.5%. This downward trend in inflation supports market expectations for an end to the Fed's rate hike cycle in the near term. 

While the dot plot scheme from the December FOMC meeting showed terminal rate projections above 5 percent. A significant drop in inflation opened up the possibility of the Fed.

They may stopping raising rates before reaching those levels. Relatively weaker core inflation figures for three consecutive months are starting to form a trend.

Euro and Yen Hit by a Market Speculation 

That was a trend that could prompt the Fed to slow the pace of further tightening at its next FOMC meeting on February 1. It was said by Sal Guatieri, a senior economist at BMO Capital Markets.  

Yen and Euro Hit by New Speculation in the market so far. The U.S. dollar rate was also hit by several other news related to its two main rivals, the euro and yen. 

Contrary to the Fed's increasingly dovish interest rate projections, the policy bias of the European Central Bank (ECB) and Japan (BoJ) is even more aggressive. 

Yomiuri reports that next week's BoJ meeting will review the side effects of loose monetary policy that has been in place over the past few years. In addition, the BoJ is likely to take steps to "correct" distortions in the yield curve arising as a result of the policy. 

BOJ may Changes It’s Policies 

Last night's report stressed that next week's BoJ meeting opens up the possibility of policy changes. This was stated by an ING's Chris Turner, as it was reported by Reuters.

People may start to see a normalization of monetary policy that will be a big step for Japan and a positive wind for the yen. A number of top ECB officials recently issued an open call for interest rates to be raised even higher in order to curb inflation.

The Eurozone's inflation rate has seen a streak of declines over the past three months of 2022. However, the key of inflation rate is still above 9 percent so far. 

The analysts expectation is to raise interest rates by another 125 basis points from the ECB and then keep rates high until 2024. That was as Turner added.

Heading into the Final Act of Rate Hike

Their core view for Fed versus ECB policy is towards a stronger EUR/USD so far this year. Now, the Fed's chances of raising interest rates in large numbers will be slim. 

About 89.6% of Reuters survey respondents had even predicted the Fed would only raise rates by 25 basis points at its next meeting. The Expectations are bold at this level. 

People will see two more 25 basis point rate hikes at the next two Federal Reserve meetings, as it was said bt David Meger. He is an analyst at High Ridge Futures.