Wed, Feb 01, 2023 @ 19:53 GMT
HomeAction InsightMarket OverviewDollar Dives as Cooling Inflation Gives Nod to Slower Fed Tightening

Dollar Dives as Cooling Inflation Gives Nod to Slower Fed Tightening

Dollar declines sharply after US data showed consumer inflation slowed notably in December as expected. The development reinforces expectation for Fed to further slowdown tightening in February with a 25bps hike. Yen is so far the strongest one for the day, as lifted by decline in US and European benchmark yields. Australian Dollar is leading commodity currencies higher on risk-on sentiment. European majors, while up against the greenback, is lagging behind.

Technically, Gold also jumps on Dollar selloff and it’s now having sight on 1900 handle. Sustained break there will pave the way to 161.8% projection of 1616.51 to 1786.63 from 1728.48 at 2004.05. However, break of 1866.94 support will be the first sign of topping, which could be a signal for Dollar bottoming too.

In Europe, at the time of writing, FTSE is up 0.81%. DAX is up 0.68%. CAC is up 0.89%. Germany 10-year yield is down -0.079 at 2.095. Earlier in Asia, Nikkei rose 0.01%. Hong Kong HSI rose 0.36%. China Shanghai SSE rose 0.05%. Singapore Strait Times dropped -0.11%. Japan 10-year JGB yield dropped -0.0005 to 0.505.

US CPI slowed to 6.5% yoy in Dec, core CPI down to 5.7% yoy

US CPI declined -0.1% mom in December, below expectation of 0.0% mom. CPI core (ex food and energy) rose 0.3% mom, matched expectations. Food index rose 0.3% mom. Energy index dropped -4.5% mom.

Over the last 12 months, CPI slowed from 7.1% yoy to 6.5% yoy, matched expectations. That’s also the lowest level since October 2021. CPI core slowed from 6.0% yoy to 5.7% yoy, matched expectations. Energy interest was at 7.3% yoy while food was at 10.4% yoy.

US initial jobless claims dropped to 205k

US initial jobless claims dropped -1k to 205k in the week ending January 7, below expectation of 210k. Four-week moving average of initial claims dropped -2k to 213k.

Continuing claims dropped -63k to 1634k in the week ending December 31. Four-week moving average of initial claims dropped -9k to 1680k.

ECB Survey: Consumer inflation expectations reversed in Nov

In ECB’s November Consumer Expectations Survey, mean inflation expectations for the 12 months ahead dropped back to 7.3%, comparing to October’s 8.1% and September’s 7.3%.

Median inflation expectations for the 12 months ahead dropped to 5.0%, comparing to October’s 5.4% and September’s 5.1%.

Mean inflation expectations for the 3 years ahead dropped to 4.6%, comparing to October’s 4.9%, and September’s 4.8%.

Median inflation expectations for the 3 years ahead dropped to 2.9%, comparing to October’s 3.0%, and September’s 3.0%.

ECB Bulletin: Headline inflation to stay above target until mid-2025

In the monthly Economic Bulletin, ECB said, “evidence from surveys and markets shows that forecasters continue to expect inflation to peak soon, with longer-term expectations remaining at around the ECB 2.0% target.” Still, “close monitoring is warranted given the further above-target revisions of some indicators”.

In the December Eurosystem staff macroeconomic projections, headline inflation in Eurozone ill fall from average 8.4% in 2022 to 6.3% in 2023, 3.4% in 2024, and then 2.3% in 2025. Headline inflation is expected to remain above the ECB’s target of 2.0% until mid-2025.

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.6877; (P) 0.6902; (R1) 0.6930; More…

AUD/USD’s rally resumed after brief consolidation and intraday bias back on the upside. Current rally from 0.6169 is in progress to 61.8% projection of 0.6169 to 0.6892 from 0.6721 at 0.7444. On the downside, break of 0.6875 minor support will turn intraday bias neutral and bring consolidations again. But overall outlook will stay bullish as long as 0.6721 support holds, in case of retreat.

In the bigger picture, corrective decline from 0.8006 (2021 high) should have completed with three waves down to 0.6169 (2022 low). Further rally should be seen to 61.8% retracement of 0.8006 to 0.6169 at 0.7304. Sustained break there will pave the way to retest 0.8006. This will now remain the favored case as long as 0.6721 support holds.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:45 NZD Building Permits M/M Nov 7.00% -10.70%
23:50 JPY Bank Lending Y/Y Dec 2.70% 2.80% 2.70%
23:50 JPY Current Account (JPY) Nov 1.92T 0.65T -0.61T
00:30 AUD Trade Balance (AUD) Nov 13.20B 11.30B 12.22B 12.74B
01:30 CNY CPI Y/Y Dec 1.80% 1.80% 1.60%
01:30 CNY PPI Y/Y Dec -0.70% -0.10% -1.30%
05:00 JPY Eco Watchers Survey: Current Dec 47.9 47.8 48.1
09:00 EUR ECB Economic Bulletin
13:30 USD Initial Jobless Claims (Jan 6) 205K 210K 204K 206K
13:30 USD CPI M/M Dec -0.10% 0.00% 0.10%
13:30 USD CPI Y/Y Dec 6.50% 6.50% 7.10%
13:30 USD CPI Core M/M Dec 0.30% 0.30% 0.20%
13:30 USD CPI Core Y/Y Dec 5.70% 5.70% 6.00%
15:30 USD Natural Gas Storage -15B -221B

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