Falling US inflation could lead to a spike in euro and pound
April 13, 2023 11:22 am
Euro and pound rose on Wednesday as the latest US inflation data may convince the Fed not to continue its aggressive tightening of monetary policy. Although the figure is still far from the target 2% level, it is rather inappropriate for the Fed to keep on raising interest rates as the US just recently survived a banking crisis.
As the data showed, the key inflation indicator in the US decreased in March this year but remained at a relatively high level. Core inflation, which excludes food and energy, rose 0.4% m/m after increasing by 0.5% in February. The overall indicator also rose by 0.1%, reflecting lower prices for gasoline and natural gas. The forecast for the two is a 0.4% m/m rise for the core indicator and a 0.2% gain for the overall indicator.
In terms of year-on-year data, core inflation grew by 5.6%, while the overall indicator declined to 5.0%. The latter was much better than expected as the forecast was 5.1%.
Upon closer examination, it is evident that housing expenses grew at the slowest pace since November, although they remained a significant source of monthly growth. Food prices fell for the first time since September 2020, while the cost of eating out continued to rise confidently. Used car prices decreased in March, while the cost of airfares, household items, and auto insurance increased.
The numbers highlight the volatile nature of inflation, especially in the service sector. It also suggests potential disinflation in the future.
However, since policymakers are also closely monitoring any signs of change in the banking sector, rapid consumer price growth combined with a still-strong labor market will likely prompt the Fed to raise interest rates at least once more before taking a pause.
In the forex market, euro bulls still have a chance to continue a rally and update the highs. But in order to do so, the quote has to stay above 1.0960 and take control of 1.1000. This will allow a rise beyond 1.1035 and towards 1.1060 to 1.1090. In case of a decline and lack of bullish activity around 1.0960, the pair will fall to 1.0930 and 1.0900.
Pound bulls also continue to have control over the market. However, the quote has to consolidate above 1.2510. That will trigger a much larger rise to 1.2550 and 1.2590. In case there is a decline, bears will attempt to take 1.2460, which could lead to a fall to 1.2410 and 1.2370.
The material has been provided by InstaForex Company – www.instaforex.com
Euro and pound rose on Wednesday as the latest US inflation data may convince the Fed not to continue its aggressive tightening of monetary policy. Although the figure is still far from the target 2% level, it is rather inappropriate for the Fed to keep on raising interest rates as the US just recently survived a banking crisis.
As the data showed, the key inflation indicator in the US decreased in March this year but remained at a relatively high level. Core inflation, which excludes food and energy, rose 0.4% m/m after increasing by 0.5% in February. The overall indicator also rose by 0.1%, reflecting lower prices for gasoline and natural gas. The forecast for the two is a 0.4% m/m rise for the core indicator and a 0.2% gain for the overall indicator.
In terms of year-on-year data, core inflation grew by 5.6%, while the overall indicator declined to 5.0%. The latter was much better than expected as the forecast was 5.1%.
Upon closer examination, it is evident that housing expenses grew at the slowest pace since November, although they remained a significant source of monthly growth. Food prices fell for the first time since September 2020, while the cost of eating out continued to rise confidently. Used car prices decreased in March, while the cost of airfares, household items, and auto insurance increased.
The numbers highlight the volatile nature of inflation, especially in the service sector. It also suggests potential disinflation in the future.
However, since policymakers are also closely monitoring any signs of change in the banking sector, rapid consumer price growth combined with a still-strong labor market will likely prompt the Fed to raise interest rates at least once more before taking a pause.
In the forex market, euro bulls still have a chance to continue a rally and update the highs. But in order to do so, the quote has to stay above 1.0960 and take control of 1.1000. This will allow a rise beyond 1.1035 and towards 1.1060 to 1.1090. In case of a decline and lack of bullish activity around 1.0960, the pair will fall to 1.0930 and 1.0900.
Pound bulls also continue to have control over the market. However, the quote has to consolidate above 1.2510. That will trigger a much larger rise to 1.2550 and 1.2590. In case there is a decline, bears will attempt to take 1.2460, which could lead to a fall to 1.2410 and 1.2370.
The material has been provided by InstaForex Company – www.instaforex.com
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