The American CPI is announced on Wednesday at 15:30 MT time.
Inflation in the euro zone tacks on more than anticipated
In May, the annual rate of inflation in the eurozone rallied more than anticipated because energy prices went up, which is likely to underpin the European Central Bank's confidence that the figure will get back to its objective in the nearer future.
However, a high level of uncertainty keeps complicating the decision-making process of European politicians. Evidently, the upswing might fade away if volatile energy prices stop soaring or in the first quarter the economic downturn appears to be longer than expected. Another great concern is political instability in Italy, which might generate a slew of public debt problems as well as a banking meltdown over which the ECB has worked hard to tame them for the last six years.
On Thursday, the European Union statistical agency told that consumer prices in 19 countries using the common currency turned out to be 1.9% higher than in May last year, quite above the 1.2% inflation level demonstrated in April, which is the highest value since April 2017. It happened to be a stronger rebound than the surge to 1.6%, anticipated by market experts.
A great part of this recovery was due to soaring energy prices that added 6.1% for the 12 months to May, jumping 2.6% since April. Without unstable components such as food and energy, the basic inflation rate edged up to 1.1% from 0.7% in April.
While the EU’s key bank is targeting an inflation rate of under 2%, the financial institution doesn’t respond to changes, mainly driven by energy costs, like most other key banks. It’s because such inflation jumps might be temporary, while policy changes occur over a number of years. Evidently, for an energy importer, such as the EU, higher prices can diminish surge rates, as they can make customers reduce purchases of other services and goods offered within the European Union.
All attention on the market is on the Brexit process. Fears over the no-deal Brexit pushed the British pound deep down yesterday after UK Prime Minister Boris Johnson claimed he was ready to abandon negotiations.
The market sentiment is mixed, and the US dollar is trading near the lowest levels for over two years. Let’s have a look at the main market movements today.
The European Central Bank will publish the monetary policy statement with the interest rate decision on January 21, at 14:45 MT time.
Joe Biden is going to unveil a Covid-19 relief package of about $2 trillion. After this announcement, the 10-year Treasury yield rose, adding support for the USD.
The US dollar’s weakness offered a boost to emerging-market currencies and oil.