The CPI hit its highest level in seven months and that is unlikely to discourage the Fed from maintaining rate cuts.
He global dollar rose after the new data was published inflation in USA, the largest in seven months, and as speculation grows about a yuan weak during 2025 before the next government of Donald Trump.
He consumer price index (CPI) rose 0.3% last month, the biggest increase since April after advancing 0.2% for four straight months, the Labor Department’s Bureau of Labor Statistics said Wednesday. In the 12 months through November, the CPI rose 2.7% after rising 2.6% in October. However, this is unlikely to discourage the Federal Reserve (Fed) to cut interest rates for the third time next week amid a cooling labor market.
He dollar index —which measures the performance of the greenback in relation to a basket of six other internationally relevant currencies— rose 0.33% and closed at 106.7, while the euro fell 0.34% to $1.0492—a day before a meeting of the European Central Bank (ECB)—. In front of yuan, The dollar rose 0.3% to 7.2825.
Economists expect both headline and core consumer prices to have risen 0.3% in November, down from increases of 0.2% and 0.3%, respectively, in the previous months. Currently, the probability of a interest rate cut of 25 basis points by the Federal Reserve (Fed) on December 18 are at 85%, but a higher-than-expected inflation figure could possibly alter these expectations, and concern in this regard was supporting the dollar on Wednesday.
“The market is thinking ‘what happens if the CPI report comes out strong?’, and then some of the flexibility expectations of the Fed could be ruled out, which would be a support for the dollar”, explained Jane Foley, director of foreign exchange strategy at Rabobank in London. He said that he dollar was also being affected by the report of Reuters that the main leaders and policy makers of China are considering allowing the yuan to weaken in 2025 as they prepare to duty highest trades in a second Donald Trump presidency in the United States.
The contemplated measure reflects China’s recognition that it needs greater economic stimulus to combat Trump’s threat to impose higher tariffs, people with knowledge of the matter said, according to the report. China is expected to celebrate its Central Economic Work Conference annual this week, after Monday’s Politburo meeting promised to shift to a monetary policy “appropriately lax” to stimulate economic growth.
“If a currency depreciation served as a tactic to counteract the tariff shock, the likely escalation of the trade war could reinforce the exceptionalism (of the US dollar) and weigh on regional currencies,” he said Ken Cheung currency strategist Mizuho.
Source: Ambito
