Market Overview – February 13th
Here’s a brief update on the financial landscape as we head into Friday.
The U.S. dollar (USD) showed a slight recovery early on Friday after facing some indecision towards the end of the week. Eurostat is set to release the initial GDP figures for the fourth quarter during the European session. Following this, traders will pay close attention to the Consumer Price Index (CPI) data from January in the U.S.
USD Price Update
The USD had been relatively stable on Thursday, wrapping up the day with minimal changes. However, during early Friday Asian trading hours, the dollar began to gain strength after a report suggested that President Trump might be considering easing certain tariffs on steel and aluminum. Currently, the USD index is in positive territory above 97.00, while U.S. stock index futures have dipped by 0.1% to 0.2%. Predictions indicate that annual inflation, as measured by the CPI, could slow to 2.5% in January from 2.7% in December.
In related news, the Reserve Bank of New Zealand’s survey revealed that inflation expectations for two years out have risen from 2.28% to 2.37%. This could put some selling pressure on the New Zealand dollar (NZD), potentially pushing it down toward the 0.6000 mark.
Bank of Japan board member Naoki Tamura noted that financial conditions are likely to remain supportive, even if the central bank decides to raise interest rates. Following four consecutive days of decline, USD/JPY gained traction, moving up to approximately 153.50 by Friday morning in Europe.
The EUR/USD pair has continued its downward trend after failing to stabilize above 1.1900 earlier in the week, now hovering around the 1.1850 mark. Forecasts suggest that Eurozone GDP could grow at an annual rate of 1.3% in the fourth quarter.
For GBP/USD, the pair has seen a downward shift, trading near 1.3600. Hugh Pill, the chief economist at the Bank of England, is scheduled to speak at an event in London later today.
Meanwhile, gold has faced significant selling pressure, dropping more than 3% during U.S. trading on Thursday. While it has managed to stabilize somewhat around the European morning, it remains below the $5,000 mark.
Inflation Insights
Inflation refers to the rising prices of a standard basket of goods and services. It’s traditionally presented as a percentage change over different time frames, like month-over-month or year-over-year. Core inflation, which excludes volatile items like food and fuel, tends to be the focus for central banks aiming to maintain a stable inflation rate, usually around 2%.
The Consumer Price Index (CPI) tracks changes in the price of goods and services over time, often expressed similarly to inflation. A rise in CPI above 2% typically leads to increased interest rates, benefiting the currency. Conversely, falling inflation can lead to currency depreciation.
Interestingly, a high inflation rate can lead to a stronger currency. This happens because central banks often raise interest rates to combat inflation, attracting global capital. However, the relationship can be complex.
Gold had a reputation as a hedge against high inflation, maintaining value during turbulent economic times. Yet, rising interest rates can make gold less attractive as an asset, as it doesn’t yield interest and the opportunity cost of holding it increases. Generally, lower inflation is seen as more favorable for gold investments.
