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Euro Unfazed By U.S. CPI And ECB Steadiness

By Kathy LienForexJun 10, 2021 05:28PM ET
www.investing.com/analysis/euro-unfazed-by-us-cpi-and-ecb-steadiness-200585394
Euro Unfazed By U.S. CPI And ECB Steadiness
By Kathy Lien   |  Jun 10, 2021 05:28PM ET
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There were no fireworks for the U.S. dollar today despite the biggest jump in U.S. inflation since August 2008. Normally, the greenback would spike on a sharp rise in consumer prices, but it ended the day lower against most major currencies. A hot CPI report was widely anticipated, but also consistently downplayed by Federal Reserve officials. Still, the Fed meets next week and today’s report escalates the growing concern about the central bank’s complacency and the danger that inflation will not fall as readily as it anticipate.

While the 5% year-over-year increase in prices will force the Fed to upgrade its inflation projections in this quarter’s economic forecasts, it is taking a data- rather than forecast-driven approach. In other words, the central bank wants to see evidence of uncontrollable inflation before adjusting policy. Expiring enhanced unemployment benefits is one of the main reasons why the Fed wants to wait. Its concern is that wage pressures will ease as more workers return to the workforce. USD/JPY jumped to 109.80 on the back of CPI, but turned lower by the end of the New York session. The University of Michigan Consumer Sentiment Index is due for release tomorrow, with further improvements expected.

The European Central Bank’s monetary policy announcement disappointed euro traders who were hoping for more. The ECB upgraded its inflation and growth projections for 2021 and 2022 but avoided any talk of taper. Like the Fed, ECB President Christine Lagarde sees the increase in inflation as transitory and feels that underlying inflation remains subdued. Prices could rise further in the second half of the year but should decline as “temporary factors fade out.” For these reasons, it expects headline inflation to remain below its “aim over the projection horizon.” Lagarde also didn’t sound overly excited about the economic boost from reopenings, as she pointed to little movement in the labor market and described overall risks as broadly balanced. The main takeaway from the ECB is that accommodation is here to stay and, like the Fed, it wants to be data rather than forecast driven. The euro traded lower against all of the major currencies on the back of the ECB meeting.

The focus turns to sterling tomorrow, with UK industrial production and trade data scheduled for release. Sterling was one of the best performers today versus the euro and the U.S. dollar because the sharp rise in manufacturing PMI signals stronger IP and trade.

Although virus cases are rising in the UK, restrictions are easing and economic activity is growing. Sterling traders should keep an eye on the headlines because there’s growing talk that the June 21 reopening could be delayed. If that happens, sterling could fall quickly and aggressively.

All three commodity currencies traded higher on Thursday, with the Australian and New Zealand dollars leading the gains. AUD was supported by stronger inflation expectations and new home sales. Tonight, New Zealand’s manufacturing PMI report is due for release. Investors will be keen to see if the sharp drop in the index last month continued in May. A recovery is anticipated and necessary for NZD to extend its gains.

Euro Unfazed By U.S. CPI And ECB Steadiness
 

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Euro Unfazed By U.S. CPI And ECB Steadiness

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Comments (14)
Bellamy Fernades
Bellamy Fernades Jun 13, 2021 3:15AM ET
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alright if you say so dear we all are waiting okay
TL Chan
TL Chan Jun 11, 2021 2:30AM ET
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Forgot one more factor, the 25% chance that US and Nato would go in heat war with CCP after the covid origin report that will be released in 90 days!
TL Chan
TL Chan Jun 11, 2021 2:24AM ET
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Too soon to price in that. Still Fed is working on a very tight schedule!
TL Chan
TL Chan Jun 11, 2021 2:23AM ET
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That has not been factored in yet! You have my words!
TL Chan
TL Chan Jun 11, 2021 2:22AM ET
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The hyperinflation due to M2 expansion and velocity pick up and CCP inflation would only come at least 6 mth after the supply chain glitch is cleared.
TL Chan
TL Chan Jun 11, 2021 2:18AM ET
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The bond yield is played by smartest people, who already factored in the inflation is peaking end Jun and will come down in a month, all the inflation is from supply chain glitch which leads to speculation trade and looping and looping, and disrupted by demand destruction before correction, that is all. Even the geopolitical scene telling us oil would not cross 80 and designated to come down in a month !
TL Chan
TL Chan Jun 11, 2021 2:16AM ET
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The bond yield is played by smartest people, who already factored in the inflation is peaking end Jun and will come down in a month, all the inflation is from supply glitch which leads to speculation trade, that is all. Even the geopolitical scene telling us oil would not cross 80 and designated to come down in a month !
SATHYAMURTHY PS
SATHYAMURTHY PS Jun 10, 2021 10:03PM ET
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5% increase in prices is not forecast it is data. Then what is data driven approach fed is waiting for?
isaac ibañez
isaac ibañez Jun 10, 2021 8:05PM ET
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good morning,how to
Ardy Ismail
Ardy Ismail Jun 10, 2021 6:27PM ET
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I see an imminent break out to the upside for AUDUSD. The move last week was basically a bear trap.
Hunter Gassaway
Hunter Gassaway Jun 10, 2021 6:17PM ET
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Eye KanT Spel
Ilyas Ilkhgg
Ilyas Ilkhgg Jun 10, 2021 4:06PM ET
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haw ar you
Khanh Phuong
Khanh Phuong Jun 10, 2021 3:35PM ET
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Tks Kathy
Mohammed Rokaon
Mohammed Rokaon Jun 10, 2021 3:11PM ET
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Vukota Pejovic
Vukota Pejovic Jun 10, 2021 3:11PM ET
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Hi !
 
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