A gauge of global stocks rose on Thursday while US Treasury yields and the dollar fell after a reading of consumer prices fueled expectations the Federal Reserve may have room to dial back the size of its expected interest rate hikes.

US consumer prices unexpectedly fell for the first time in more than 2-1/2 years in December amid declining prices for gasoline and other goods, suggesting that inflation was now on a sustained downward trend.

Still, a separate reading on the labor market showed weekly initial jobless claims came in at 205,000, below expectations of 215,000. Many market participants are looking for signs of weakness in the labor market as a key sign of slowing inflation.

On Wall Street, equities were choppy after the data, with the S&P 500 falling as much as 0.8% before rebounding.

The Dow Jones Industrial Average rose 120.63 points, or 0.36%, to 34,093.64, the S&P 500 gained 2.43 points, or 0.06%, to 3,972.04 and the Nasdaq Composite dropped 11.84 points, or 0.11%, to 10,919.83.

“The as expected headline and core CPI print have really contributed to the notion that the Fed will be downshifting again, whether it’s at February or at the March meeting remains to be seen, and we’re going to be watching the incoming Fed speak for any guidance throughout the day in that regard,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York.

“The fact that we have seen core inflation decelerate to 5.7% year-over-year, from 6% in November, reinforces the peak inflation argument.”

The pan-European STOXX 600 index rose 0.75% and MSCI’s gauge of stocks across the globe gained 0.45% and was on track for a fifth straight session of gains, its longest streak since August.

Expectations for a 50 basis point rate hike at the next Federal Reserve meeting fell to 6.8% according to CME’s FedWatch Tool, down from 23.3% the day prior. The market is pricing in a 93.2% chance of a 25 basis point hike, up from 76.7% on Wednesday.

The benchmark U.S. 10-year notes were down 3.9 basis points to 3.517%, from 3.556% late on Wednesday.

The dollar index hit its lowest level since early June before paring losses, and was last down 0.417%, with the euro up 0.42% to $1.08.

The Japanese yen strengthened 2.01% versus the greenback at 129.85 per dollar, while Sterling was last trading at $1.2151, up 0.07% on the day.

Crude prices rose in the wake of the data, getting an additional boost from optimism over China’s emergence from its COVID-19 restrictions creating additional demand.

US crude recently rose 1.11% to $78.27 per barrel and Brent was at $83.78, up 1.34% on the day.

Gold prices pared gains after earlier jumping more than 1% to above the key $1,900 per ounce pivot on Thursday after data showing signs of cooling inflation in the United States boosted bets for slower rate-hikes from the Federal Reserve ahead.

US consumer prices grew 6.5% on an annual basis in December, in line with expectations, from a 7.1% rise last month. Core inflation was in line with expectations as well.

Spot gold was up 0.7% at $1,889.44 per ounce by 11:00 a.m. ET (1600 GMT), earlier hitting $1,901.4, its highest since May 2022.

U.S. gold futures rose 0.6% to $1,890.60.

“Given that there was no big surprise over and above what the market expected at the (inflation) numbers today, it’s reasonable to say that the response wasn’t more robust, but more in line with where people have positioned prior to the data,” said Bart Melek, head of commodity markets strategy at TD Securities.

Money market participants see a 89.6% chance the Fed will raise the benchmark rate by 25 basis points in February.

Following the CPI report, the dollar dropped 0.4% to its lowest since early June, making gold more attractive for other currency holders.

“The expectations clearly look like at this point, we’re going to see two more 25 basis point rate hikes at the next two Fed meetings,” said David Meger, director of metals trading at High Ridge Futures, adding the underlying environment for gold was strong.

Fed Bank of Philadelphia leader Patrick Harker said the end stage for the central bank’s rate rise campaign is in sight.

While a separate report from the Labour Department showed initial claims for state unemployment benefits fell last week, signs of inflation decreasing took precedence.

Elsewhere, silver rose 1.3% to $23.72 per ounce, platinum was down 0.7% to $1,063.01, while palladium was steady at $1,773.38. ederal Reserve Bank of Philadelphia leader Patrick Harker said Thursday that while the central bank needs to raise rates more to cool off inflation, it can probably do so at a much slower pace compared to the action of last year.

“I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed,” Harker said in a speech to a local group in Malvern, Pa. “In my view, hikes of 25 basis points will be appropriate going forward.”

Agencies