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Recent data from the U.SBureau of Labor Statistics has revealed a concerning trend in inflation, particularly in the core Consumer Price Index (CPI), which excludes food and energy costsIn January, this metric rose at a month-over-month rate of 0.4%, marking the highest increase since March 2024. This figure not only surpassed the market expectation of 0.3% but also exceeded the previous month’s rate of 0.2%. Looking at year-over-year increases, the core CPI accelerated to 3.3%, higher than both the expected 3.1% and the former reading of 3.2%. Meanwhile, the overall CPI increased by 0.5% month-over-month — the steepest rise since June 2024, well above the forecast of 0.3% and the prior 0.4%. Year-over-year, it returned to a “three” handle at 3%, up from both the previous number and market projections of 2.9%.
These figures further affirm that the disinflationary process in the United States may be reversing, exacerbated by a robust labor marketThis situation presents a dilemma for the Federal Reserve, leaving policymakers hesitant to adjust interest rates in the immediate futureThey are particularly concerned about further clarity regarding U.S. tariffs, which have contributed to an uptick in consumer inflation expectationsTraders have responded to these developments by adjusting their expectations for the Federal Reserve’s next interest rate cut, moving from September 2024 to December 2024.
Across the Atlantic, the European Central Bank (ECB) faces its own economic hurdlesIsabel Schnabel, a member of the ECB’s Executive Board, highlighted that merely reducing borrowing costs will not address the various structural challenges facing the Eurozone's economySpeaking at the Institute for Employment Research in Germany, Schnabel noted that current economic growth is mild, compounded by increased uncertainty surrounding trade, while the effectiveness of a looser monetary policy remains limited
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She articulated that while interest rate cuts might alleviate economic lethargy, they will not resolve structural crises such as high energy prices, loss of competitiveness, and labor shortagesSchnabel’s comments underscore a need for Europe to recalibrate its economic strategies in light of intensifying geopolitical divisions, suggesting a reconsideration of its export-led growth model.
As of today, several key economic data releases warrant attention, including the preliminary GDP growth rate for the fourth quarter from the United Kingdom, the final CPI year-on-year figures for Germany in January, the monthly GDP rate for the UK in December, the monthly industrial production rate for the UK, and the seasonally adjusted goods trade balance for the UKAdditionally, U.S. unemployment claims for the week ending February 8 and the PPI year-on-year for January are expected to provide further insights into economic trends.
In currency markets, the U.S. dollar index demonstrated a volatile yet upward trajectory yesterdayDespite fluctuations during the trading day, the index closed with modest gains, stabilizing around 107.90. One significant factor contributing to this rally was the short covering by investors who had previously bet against the dollar indexFurthermore, the strong CPI data released, which exceeded market expectations, quelled expectations for a near-term interest rate cut by the Federal ReserveIn an environment of rising inflation, the consensus appears to favor maintaining current interest rates, with some anticipating potentially more hawkish policies, thereby boosting the dollar’s allure as an investmentAdditionally, global concerns surrounding U.S. tariff policies have heightened risk-averse sentiments, prompting investors to seek safety in the dollarLooking ahead, traders should keep an eye on the resistance near 108.50. A breakthrough could signify further gains for the dollar index, while the critical support at 107.50 requires monitoring; a dip below this level could trigger new selling pressure.
Regarding the Euro, the currency has been traversing an upward path since yesterday
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