U.S. Dollar Drops to a Nearly 9-month Low vs Euro After U.S. inflation data

(CTN News) – In response to U.S. inflation statistics showing prices were on a consistent downward trend, which raised hopes that the Federal Reserve would be less aggressive moving ahead with rate rises, the U.S. dollar plunged to a nearly 9-month low versus the euro on Thursday.

According to the statistics, prices unexpectedly dropped in December for the first time in more than two and a half years. View More

In May 2020, when the economy was in shambles due to the first wave of COVID-19 infections, the consumer price index (CPI) first decreased by 0.1%.

Reuters surveyed economists, who predicted no change in the CPI.

Price pressures are easing as supply chain bottlenecks loosen and demand is dampened by the U.S. central bank’s quickest monetary policy tightening cycle since the 1980s.

Sal Guatieri, the senior economist at BMO Capital Markets, said that “three months of comparatively weaker core inflation readings are beginning to build a pattern… one that might lead the Fed to moderate the pace of tightening further on February 1.”

Following the release of the CPI statistics, the dollar fell to $1.0845 against the euro, its lowest level against the euro since April 25.

The hawkish rhetoric of European Central Bank officials, four of whom called for more rate rises on Wednesday, continues to strengthen the euro.

The ECB will likely continue to raise rates by 125 basis points until 2024, according to Turner of ING.

“Our fundamental outlook would be for a stronger euro-dollar throughout the year for Fed policy vs ECB policy,”

At 9:15 a.m. EST (1415 GMT), the dollar was down 0.34% against the euro at $1.0796 and 0.3% against the pound at $1.2187.

Last trading at 102.7, the U.S. dollar index was down 0.407%, the lowest level since June 9.

A Yomiuri report that the Bank of Japan (BOJ) would evaluate the consequences of its monetary stimulus at next week’s policy meeting and may take extra actions to rectify distortions in the yield curve helped the dollar drop to a 6-and-a-half-month low versus the Japanese yen.

The revelation comes after the BOJ’s unexpected adjustment to its bond yield curve control in December. However, the change did not address market distortions brought on by the central bank’s huge asset purchases.

According to Chris Turner, global head of markets at ING in London, “the report overnight emphasizes that next week’s Bank of Japan meeting is live for a possible policy adjustment.”

“You may start to see the normalization of monetary policy,” Turner said, “which would be a significant move for Japan (and) a very favorable tailwind for the yen.

At 130.2 yen to the dollar, the dollar was recently down 1.75 percent against the yen.

Kiwi was up 0.18% at $0.6378, while the Aussie increased by 0.59% to $0.6947.

Data on Thursday revealed that Australia’s November trade surplus surprisingly increased and beyond expectations.

Because of the hope that China’s economy is on the mend, the offshore yuan reached its best level in five months at 6.747 to the dollar.

Meanwhile, bitcoin increased for a fifth day, reaching $18,159, its highest monthly level.

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