© Archyde.com.
Investing.com – The US dollar fell to its lowest level in nearly nine months against the euro on Thursday, after US inflation data indicated that prices were on a sustainable downward trend, raising expectations that the US Federal Reserve will slow the pace of interest rate hikes.
The data showed that prices fell unexpectedly for the first time in more than two and a half years in December.
The data showed monthly consumer prices fell in December for the first time in more than two and a half years.
On Thursday, the Labor Department said its consumer price index fell 0.1 percent last month, after rising 0.1 percent in November. This is the first decrease in the index since May of 2020 when the economy was suffering from the repercussions of the first wave of the Covid-19 pandemic.
The dollar reached $ 1.0845 against the euro, its weakest level against the single European currency since April 25, after the release of the Consumer Price Index report.
Surprising inflation data
The Consumer Price Index (CPI) fell 0.1% last month, marking the first decline in the data since May 2020, when the economy was reeling from the first wave of COVID-19 infections.
Economists polled by Archyde.com had expected no change in the consumer price index.
Price pressures are receding as the US central bank’s fastest tightening monetary policy since the 1980s begins to ease demand, and at the same time bottlenecks in supply chains begin to ease.
“Three months of relatively softer core inflation numbers are beginning to form a trend… one that may prompt the Fed to slow the pace of tightening on February 1,” said Sal Guaterie, chief economist at BMO Capital Markets.
The dollar against the euro after the data
The dollar reached $1.0845 against the euro, its lowest level against the single currency since April 25, after the Consumer Price Index report.
The euro continues to find support from hawkish messages from European Central Bank officials, four of whom on Wednesday called for higher interest rate hikes.
“Our expectation is another 125 basis point rate hike by the ECB and to stay there through 2024,” said Turner of ING.
“Our fundamental views of Fed policy versus ECB policy will be for consolidation through the year.”
The dollar fell 0.34 percent against the euro to $1.0796, and 0.3 percent against the pound at $1.2187.
The dollar against the yen after the data
The dollar hit a 6-and-a-half-month low against the Japanese yen, which was strengthened after Yomiuri reported that the Bank of Japan (BOJ) will review the side effects of monetary easing at next week’s policy meeting and may require further steps to correct distortions in the yield curve.
The news follows the Bank of Japan’s surprise adjustment in December to control the yield curve, although the move failed to address distortions caused by massive bond purchases by the central bank in the bond market.
“The report released last night confirms that the BoJ meeting next week could lead to a potential policy change,” said Chris Turner, head of global markets at ING in London.
“You could start to see monetary policy normalization which will be a big step for Japan (and) very positive winds for the yen,” Turner added.
The dollar last fell 1.75% against the yen at 130.2 yen to the dollar.
dollar against other currencies
The Australian dollar (Aussie) rose 0.59% to $0.6947, while the New Zealand dollar (Kiwi) rose 0.18% to $0.6378.
Data released on Thursday showed Australia’s trade surplus widened unexpectedly in November and came in much higher than expected.
Abroad, it recorded the highest level in five months at 6.747 dollars, amid optimism that the Chinese economy is on its way to recovery.
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