Yesterday (20/01), EUR/USD fell slightly even though disappointing US inflation data overshadowed the possibility of Federer Reserve rate hike. The currency pair moved in a broad range between $1.0877 and $1.0976, before settling at $1.0889, down 0.20% compared with the open price ($1.09044).
At 8:30 p.m GMT+7, Consumer Price Index (CPI) was reported by the Bureau of Labor Statistics to decline 0.1% in December, slightly below forecasts of a flat reading. Specifically, housing and medical care prices inched up by 0.1% while as expected, energy prices dragged down the overall index, falling more than 2% in the last month of the year.
The Core CPI, which excludes food and energy prices, just increased modestly by 0.1% compared with the figure of November, softer than consensus estimates for monthly gains of 0.2%. The Core reading increased by 2.1% from the same period a year earlier meanwhile the Fed’s preferred inflation gauge-Core Personal Consumption Expenditure (PCE) index, which is published last month – rose by 1.3% on a yearly basis for the month of November and still has a long way to reach the objective inflationary target of 2%.
Others US economic data also sank in gloomy condition with housing starts dropped 2.5% to a seasonally adjusted annual pace of 1.15 million units as both single- and multi-family projects fell. In addition, building permits declined 3.9% to a 1.23 million unit in December, pulled down by an 11.4% plunge in permits for multi-family buildings. However, this weakness is expected to be on temporary especially when the labour market has been flourished with more than 200,000 jobs created per month.
The weak data has put down the chance of Fed raising interest rate in March meeting from 50% in late-December to 29% according to the CME Group’s FedWatch index. In an interview with CNBC on Wednesday morning, Ray Dalio, the founder of hedge fund Bridgewater Associates, noted that the Fed’s next move should include a renewal of Quantitative Easing, not further tightening of its policies.
Investors has been awaiting the meeting of European Center Bank today to have a clear instruction of the market direction. The pair has reversed constantly these days as the rout in oil price hold back the recovery of inflation in both US and Euro zone. The monetary policy divergence between Fed and ECB seems to be dimmed when both center banks has to solve the price problem.
In other hand, the slide in crude price also has negative repercussion on stock market when most of the stocks of energy company tumbled. US stocks had a frenzied day of trading with all three main indexes closed lower. The flow of capital moved to safe-haven such as gold and Japanese yen and the greenback, supporting the US dollar inched up against the common currency.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.30% to an intraday low of 98.69, before rebounding to close at 99.16.
Analysis of Group Fiinveting.com