Stocks rose and the US dollar fell after US inflation fell faster than investors expected in March. The share of the USD/JPY currency pair was a decline to the support level of 132.73, down from the resistance level of 134.04 recorded prior to the US economic data numbers and the contents of the minutes of the last meeting of the US Federal Reserve.
According to the official announcement, the headline CPI inflation rate rose 0.1% month-on-month in March, which was half of the 0.2% increase the market had expected. This also represents a significant slowdown from February’s rise of 0.4%. This dragged down year-on-year growth to 5.0% in March, down from 6.0% in February and the consensus forecast of 5.2%.
Also, according to the forex market trading, the US dollar fell in general in the wake of the numbers: the pound-to-dollar exchange rate (GBP/USD) rose by half a percent to 1.2464 and the EUR/USD rose by a similar margin at 1.0990. Gains in EUR/USD and GBP/USD may have been tempered by very important core inflation data which did not present any surprises and, in general, kept alive the possibility of another US rate hike.
Core inflation rose 0.4% in March, down slightly from 0.5% in February, but on target with consensus expectations. The annual gain stood at 5.6%, again in line with expectations, but slightly above February’s reading of 5.5%. Factors causing the decline in US inflation include lower energy bills, used vehicles, restaurant bills, and medical services.
Commenting on this, Ryan Brandham, head of global financial markets at Validus Risk Management, says that inflation in the United States is declining at the very least, even if not as fast as the Fed wants. He added, “The US economic data has softened recently, which will satisfy the Federal Reserve, and this latest release does not affect this issue in the market.”
The declines in inflation are consistent with Truflation data, which shows that the utilities, healthcare, education, and food and alcoholic beverages sectors are all driving the rate lower. The Truflation Index, compiled using millions of data points taken in real time and traded daily, shows US inflation at 4.3% as of April 12. Analysts now say the recent banking crisis appears to have overtaken the Fed, and that could lead to another 25 basis point hike to “really make sure that inflation dies.” However, with a credit crunch already underway, there may be enough drivers now to bring down inflation without a further increase.
- The USD/JPY gains stopped following the US inflation figures, which did not stop the course of the current bullish trend for the currency pair.
- For the bulls to have strong and continuous control over the trend, the currency pair should move towards the resistance levels 135.10 and 136.50, respectively.
- On the other hand, upward hopes may arise if the currency pair returns to the vicinity of the support level 131.70 again.
Today’s US inflation readings – the Producer Price Index – and the number of weekly US jobless claims – and tomorrow the US retail sales and consumer confidence readings will paint a picture of closing the trading of the currency pair for this week, which is the closest to an upward trend.
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