Introduction to Currency Market
The US dollar lost ground against the Japanese yen and Swiss franc yesterday after data showed a lower-than-expected rise in US inflation, while the euro eased after the European Central Bank (ECB) held interest rates steady. The US consumer price index rose 2.7% year-on-year in November, according to labor department data, compared with a 3.1% increase forecast by economists polled by Reuters.
US Dollar Performance
The dollar weakened 0.12% to ¥155.50 against the Japanese yen and was down 0.14% to CHF0.79405 against the Swiss franc. According to Marvin Loh, senior global market strategist at State Street in Boston, "The margin of error shouldn’t be this great and it is questionable whether what we got in this release is going to make its way into the more traditional data collection discussion.” The longest federal government shutdown in US history had impacted data collection for the inflation report.
Federal Reserve and Interest Rates
The Fed tracks the personal consumption expenditures price index for its 2% inflation target. President Donald Trump said on Wednesday the next Fed chair will be someone who believes in lower interest rates “by a lot”. All of the known candidates – White House economic adviser Kevin Hassett, former Fed governor Kevin Warsh and current Fed governor Chris Waller – advocate for interest rates to be lower than they are now.
Central Bank Moves
The euro edged lower in choppy trading after the ECB kept its policy rates steady and took a more positive view on a euro zone economy that has shown resilience to global trade shocks. The euro was last down 0.14% at US$1.17240 against the dollar. According to Barclays analysts led by Mariano Cena, "Today’s meeting offered no new information to change our view on the most likely policy path or the surrounding risk balance.”
Other Currency Updates
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, edged up 0.06% to 98.435. Sterling rose after the Bank of England delivered its fourth rate cut this year, although markets pushed back their expectations for further easing, with the next cut not fully priced until June, from April prior to the decision. Sterling strengthened 0.09% to US$1.33846.
Conclusion
In conclusion, the US dollar’s performance was affected by the lower-than-expected rise in US inflation, while the euro was impacted by the ECB’s decision to hold interest rates steady. The Federal Reserve’s stance on interest rates and the performance of other currencies, such as the Japanese yen and Swiss franc, also played a significant role in the currency market. As the market continues to evolve, it will be interesting to see how these factors influence the currency market in the future.
