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Almost all financial assets spent the first half of the trading day in a defensive stance, attempting to extend their previous consolidative efforts. Eventually, the release of the US CPI data had other arrangements and another say. Market ignored other positive news, but were there to support the optimism.
The US dollar retreated as Wall Street soared, while volatility dominated the US session. The EUR/USD pair trades around 1.0840, while GBP/USD stands at 1.2210, not far below fresh multi-month highs. Commodity-linked currencies also rallied, with AUD/USD now changing hands at 0.6970 and the USD/CAD pair down to 1.3350. Finally, USD/JPY hovers around 129.30, after bottoming at a fresh multi-month low of 128.86.
Gold flirted with the $1,900 level, ending the day at around $1,896 a troy ounce. Crude oil prices were also up, with WTI settling at $78.70 a barrel.
Economic Data
The US CPI rose at an annual pace of 6.5% as expected in December, while core price pressures were up by 5.7%, in line with the market forecast. On a monthly basis, inflation contracted 0.1%, while the core reading met expectations, up 0.3%.
Key Developments
Signs of easing price pressures in the world’s largest economy were coupled with comments from US Federal Reserve officials. The last was Bostic, but the first one was Fed’s Patrick Harker, saying that “the worst of the inflation spike is likely past now,” adding that the time of super-sized rate hikes has passed, and it’s time to switch to 25 basis points (bps) increments.
Fed’s James Bullard spoke and noted that the most likely scenario is inflation remaining above 2%, so the policy rate will need to be higher for longer. Fed’s Thomas Barkin said that it “makes sense” to steer more deliberately as the Fed works to bring inflation down.
Fed’s Raphael Bostic said, early Friday, he would be comfortable moving at 25 basis points if conversations with business leaders are consistent with slowing inflation. He said that the signs of slowing wage increases “also positive”.Data showing inflation slowed in December “was really welcome news.
During Asian trading hours, the Bank of Japan (BoJ) announced it would investigate the consequences of its ultra-easy policy. Market players read it as a potential shift in the central banks’ monetary policy. Additionally, China re-started imports from Australian coal, after banning them in the early stages of the COVID-19 pandemic. Later in the day, market talks suggested the United Kingdom and the Euro Zone will start talks to end the Brexit clash and reach a final deal.
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