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The weak indicators of US producer prices led to selling of the US dollar against a number of world currencies, including the euro and the British pound, which managed to update the weekly highs.
It should be noted that the Fed will seriously pay attention to inflation indicators, and the weak inflation background may seriously affect the prospects for further interest rate hikes in the US this year, which will weaken the US dollar even more.
According to the report of the US Department of Labor, the US producer price index fell in December, even though the economic situation of the country is stable.
Therefore, the PPI in December 2017 decreased by 0.1% compared to the previous month. The basic producer price index, except the prices of food and energy, also decreased by 0.1% compared to the previous month. Economists had expected the growth of the general index and the base index by 0.2%.
Compared to the same period in 2016, producer prices rose only 2.6% in December after rising by 3.1% in November. Economists had expected the index to reach the level of 3.0%.
It did not supported the US dollar data in reducing the US government budget deficit. According to the report by the US Treasury, the budget deficit in December 2017 decreased compared to the same period last year. Government spending in December exceeded revenues by $23 billion, while the budget deficit in December 2016 was $ 27 billion.
The Fed representatives continued to speak yesterday.
William Dudley said that the arguments for raising interest rates remain strong, and its further rise will be justified if the economy meets expectations.
Dudley also drew attention to the risks of weak inflation, which are so far outweighed by other factors. In his opinion, very mild financial conditions may force the Fed to more aggressive measures, but inflation will eventually return to the target of 2%.Dudley also touched on the topic of the tax bill and based on his opinion, creates real problems for fiscal stability in the future. This is because the course of fiscal policy is unsustainable.
As for the technical picture of EUR/USD pair, the breakthrough of the resistance level 1.2070 could lead to the continuation of the upward trend in euro, especially against the background of weak data on the consumer price index, which will be published today in the afternoon. The main target of the bulls for today is to go beyond the monthly highs in the regions of 1.2125 and 1.2160.
* The presented market analysis is informative and does not constitute a guide to the transaction.
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