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What’s happening: The greenback moved higher on Wednesday, after the US consumer price index rose the most since April.
What happened: Although the CPI for November rose, it met market projections and sparked speculations of the US Federal Reserve announcing an interest rate cut next week.
The US dollar also received support from a report that suggested China is looking to allow the yuan to weaken next year.
Why it matters: Data released on Wednesday showed the annual inflation rate in the US accelerated for a second straight month to a reading of 2.7% in November, from 2.6% in the previous month. The increase in prices was partly due to low base effects from the previous year.
On a monthly basis, the CPI rose by 0.3% in November, the most since April, versus October’s reading of 0.2%.
Both the annualised and month inflation numbers came in-line with market estimates. This sparked fresh speculations of the Fed cutting its benchmark interest rate by 25 bps at its meeting next week.
The recent move by China to allow the yuan to weaken signalled that the country needs bigger economic stimulus to counter the effects of tariffs threatened by President-elect Donald Trump. China is expected to hold its annual Central Economic Work Conference this week, after the Politburo recently announced plans to implement a “moderately loose” monetary policy in a bid to accelerate economic growth.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained more than 0.3% to 106.71 on Wednesday. However, the index pared some gains this morning, falling around 0.2%.
The USD/CNY forex pair rose on Wednesday but pared some gains later during the session. China-exposed currencies also moved lower, with the AUD and NZD hitting the lowest this year.
What to watch: Investors await the release of producer price inflation data (1730 UAE Time) and initial jobless claims (1730 UAE Time) from the US today. Factory gate prices in the US, which rose 0.2% in October, are expected to increase again by 0.2% in November. US initial jobless claims, which rose to 224,000 in the week ending November 30, are projected to decline to 220,000 in the latest week.
Context: Equity markets in Europe settled higher on Wednesday, as investors monitored corporate earnings and the inflation report from the US.
Details: Investor risk sentiment improved after the US inflation report came in-line with market expectations. This is because it gave the Fed the flexibility to lower interest rates, which would support the growth of the world’s largest economy.
The STOXX Europe 600 Index rose 0.28% to close at 519.95 on Wednesday. Media stocks were among the top performers, gaining around 1.4%, while retail stocks declined by 1.7% during the session.
Shares of Inditex weighed on the retail sector, falling more than 6% on Wednesday, after the Spanish clothing giant reported disappointing results for the latest quarter.
Zalando’s shares closed higher by around 1.6%, after the German online retailer announced plans to buy the fashion group About You.
London’s FTSE 100 rose 0.26% to close at 8,301.62, while Germany’s DAX 40 rose 0.34% to 20,399.16 and France’s CAC 40 climbed 0.39% to settle at 7,423.40.
What to watch: Investors await the interest rate decision from the European Central Bank (1715 UAE Time) today. The ECB is widely expected to cut rates from 3.4% to 3.15% at its policy meeting today.
Data on industrial production (1400 UAE Time), scheduled to release on Friday, will also remain in focus.
Other Markets: US trading indices closed mixed on Wednesday, with the S&P 500 and Nasdaq 100 up by 0.82% and 1.85%, respectively, and the Dow Jones index down by 0.22%.
The US Treasury disclosed that it had disbursed a loan of $20 billion to Ukraine, which was backed by proceeds from frozen Russian assets. The news sent the RUB/USD pair slightly lower in forex trading this morning.
Australia’s unemployment rate fell to 3.9% in November, from 4.1% in the previous three months. The latest reading coming in lower than market estimates of 4.2% lent support to the AUD/USD forex pair.
UK’s RICS Residential Market Survey’s house price balance rose to +25% in November, from +16% in the previous month. The latest reading topped market estimates of +19%, which sent the GBP/USD pair higher in forex trading this morning.
New Zealand’s electronic card transactions came in steady for November at NZ$6,435 million, lending support to the NZD/USD forex pair.
Brazil’s central bank increased its Selic rate by 100 bps to 12.25% at its latest meeting. However, the BRL/USD pair remained broadly flat in forex trading this morning.
South Africa’s inflation expectations (1330 UAE Time), PPI (1330 UAE Time) and building permits (1500 UAE Time), India’s industrial production (1430 UAE Time), inflation rate (1430 UAE Time) and manufacturing production (1430 UAE Time), Turkey’s foreign exchange reserves (1530 UAE Time), Brazil’s retail sales (1600 UAE Time), Mexico’s industrial production (1600 UAE Time), Russia’s balance of trade (1700 UAE Time), Canada’s building permits (1730 UAE Time), US continuing jobless claims (1730 UAE Time) and EIA natural gas stocks change (1930 UAE Time), as well as Germany’s current account (1745 UAE Time).
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