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US inflation causes cautious market sentiment


After the DXY snaps a two-day recovery, US Dollar fails to break the resistance of 105.00 and bounced back. DXY portrays the market’s cautious mood ahead of the United States’ key inflation numbers for November, the Consumer Price Index which is going to be released on Tuesday, since the inaction of DXY could be linked to the mixed prints of the early signals for it, as well as the mixed reaction to the headlines surrounding China and Russia.

Besides, while investors broadly expect the Fed to raise rates by 50 basis points, the market will be focused on the central bank’s projections for how high rates will ultimately rise and to what degree the U.S. economy can withstand monetary tightening and the CPI data has sparked explosive market gyrations, as surging inflation forced the Fed to embark on its most aggressive monetary policy.

The Dow Jones Industrial Average has raised 1.58% to close at 34005.04. The S&P 500 raised 1.43% to close at 3990.56. The tech-heavy Nasdaq Composite raised 1.26% to close at 11143.74. The surge in the stock market was the reaction to the coming of CPI, the estimated softer inflation was also seen from the PPI and the UoM Consumer Sentiment Index, moreover, the survey of consumer inflation expectations from the Fed also stated that the 1-year ahead inflation expectations slumped to their lowest level since 2021. Treasury yields drop,  U.S. 10-year treasury yield sits at around 3.6%. The policy-sensitive 2-year treasury yield sits at 4.381%.

US inflation expectations as per the 10-year and 5-year breakeven inflation rate, challenge the recently dovish bias over the Fed, as well as downbeat forecasts for the US Consumer Price Index, and the latest prints of the 5-year and 10-year inflation expectations portray a rebound to 2.28% and 2.35% respectively. The downbeat prints of the United States PPI also hinted at softer US inflation.

Main Pairs Movement

The US Dollar Index extends the previous weekly gains, the first time in three weeks, as it picks up bids to refresh its intraday high around 105.10 during early Monday. The DXY index fell sharply during the UK trading period to a daily low of 104.67 level ahead of the American session. The latest market inaction could be linked to the investors’ cautious mood ahead of the United States’ key inflation numbers for November, namely the Consumer Price Index (CPI).

The GBPUSD has little changed on Monday, as Gross Domestic Product (GDP) grew by 0.5% on a monthly basis in October following September’s 0.6% contraction. This reading came in much better than the market expectation for a contraction of 0.1% but the positive impact of the upbeat GDP data on the Pound Sterling remained short-lived. However, data failed to act as a tailwind for the pair, the pair erased most daily gains in the American session as market participants turned cautious. Meanwhile, EURUSD dropped dramatically in the early American trading session and the pair slid by 0.03% on a daily basis.

Gold dropped by 0.88% on a daily basis, the most in a week, as the US Dollar began the crucial week on a positive note despite downbeat inflation expectations and upbeat performance of the equities, as well as the Treasury bond yields.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
GBPAverage Earnings Index +Bonus (Oct)15:006.2%
GBPClaimant Count Change (Nov)15:003.5K
EURGerman CPI (YoY) (Nov)15:0010.0%
EURGerman ZEW Economic Sentiment (Dec)18:00-26.4
GBPBoE Gov Bailey Speaks19:00N/A
BRLBCB Copom Meeting Minutes19:00N/A
USDCore CPI (MoM) (Nov)21:300.3%
USDCPI (YoY) (Nov)21:307.3%
USDCPI (MoM) (Nov)21:300.3%