The U.S. Dollar is trading in mixed ranges following reaction to supply-side data domestically and the decision by the European Central Bank to cut into its benchmark interest rate.
Overview
At the time of writing, Producer Price Data from November revealed ongoing inflation as the monthly advance was double the expectation at 0.4% vs. 0.2% pace estimated. The yearly PPI average climbed from 2.6% to 3.0%. These figures follow the trend also seen on the consumer side as price growth has been stubborn. Thus far in the American session, it has not affected the Buck against many pairs with exception of Yen, which is climbing against it.
Additionally, the Initial Jobless Claims number came out a bit higher than expected. We shall see just how the Fed feels about the data when they meet next week on Wednesday. While it is expected that they will cut interest rates by 0.25%, the latest economic picture painted by indicators may lead officials to curb enthusiasm over more cuts to come gradually as a new year begins. Inflation and growth are still there, so it weakens the argument for exercising loose measures and keeping reducing borrowing costs. While tomorrow there is no significant data points, but there will be the Purchasing Managers Index as well as Retail Sales before the Fed meets. Treasury yields are rising and are already at a 2-week high. There is volatility at the moment ahead of low-liquidity times to come as the holidays take traders away from their desks.
What to Watch This Week…
- Euro-zone Industrial Production, Friday
- Monex USA Online is always open
EUR ⇓
The Euro lost momentum, but its downfall has been contained, as the European Central Bank cut interest rates, but also changed the language that refers to their policy strategy. While trying to combat inflation, policy statements stated the need to have a “restrictive” interest-rate mentality, but that word was removed in this decision announcement. President Christine Lagarde’s press conference is happening currently and she has already addressed concern over the slow pace of growth of the Euro-zone
JPY ⇓
The Japanese Yen depreciated overnight following reports that Bank of Japan officials are not in any rush to hike interest rates as markets have tried to price-in lately. While it is true that both the Prime Minister and financial authorities have made statements in favor of increasing interest rates based on the economy’s stability, it is starting to seem likely they choose to stay in current levels. Without clear guidance, expect Yen to continue being volatile to rapid weakness especially if speculation over higher rates in Japan keeps dying down.
