On Tuesday, the euro (EUR) held its ground against the US dollar (USD) as traders showed only moderate reactions to the latest inflation data from the U.S. Currently, EUR/USD is trading around 1.1667, holding steady while the dollar shows a generally strong tendency.
The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 0.3% month over month in December, matching expectations and remaining unchanged from November. Year-on-year, headline inflation remained consistent at 2.7%.
On the other hand, core inflation experienced a slight slowdown. Excluding the typically unstable food and energy prices, core CPI increased by 0.2% in December, which fell short of the anticipated 0.3% hike and matched the previous month’s rate. Over the year, core inflation stayed at 2.6%, lower than the expected 2.7% and unchanged from November.
This stable headline data combined with the softer-than-expected core inflation points to a gradual deflation process, indicating that the anticipated upward pressures on inflation haven’t emerged, even with the Federal Reserve’s cautious easing strategy.
Currently, the markets are factoring in approximately two rate cuts for this year, yet many investors expect the Fed to maintain its rates through the first quarter. Last week’s mixed labor market data backed this notion, as the unemployment rate dipped despite weaker-than-expected nonfarm payroll numbers.
Looking forward, attention will be on the speeches by St. Louis Fed President Alberto Moussalem and Richmond Fed President Tom Barkin later today, as they might provide further insights on the expected policy direction.
