US inflation is slower at 6.5%

　　

U.S. equities continued to march higher throughout Thursday’s trading. The initial CPI release sparked a downward spike across the three major equity indices, but as the American trading session began, all equity indices turned positive and closed higher by the bell. The Dow Jones Industrial Average gained 0.64% to close at 34189.97. The S&P 500 rose 0.34% to close at 3983.17. The tech-heavy Nasdaq Composite climbed 0.64% to close at 11001.11.

The benchmark U.S. 10-year treasury yield fell below 3.5% and was last seen trading at 3.445%, while the short-end 2-year treasury yield fell to 4.135%.

The December U.S. CPI figure came in at 6.5%, in line with market expectations. The Core CPI, which strips out food and energy prices, also came in at 0.3%, compared to last month’s reading of 0.2%. Market participants’ reaction to the as-expected CPI reading sparked a sell-off in futures markets before the market opened, but equity markets quickly recovered as short-term interest rate expectations fell. Markets are now pricing in a 25 basis point interest rate hike at the next FOMC meeting, and market participants are expecting 25 basis point interest rate hikes by the Fed moving forward.

Main Pairs Movement

The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, dropped 0.98% throughout yesterday’s trading. The short-term interest rate expectation dropped significantly after the CPI report, which came in as expected at 6.5%.

EURUSD rose 0.89% throughout yesterday’s trading. The weaker Dollar across markets allowed the Euro to extend its winning streak into the fifth straight day. EURUSD now faces a key level of 1.07.

GBPUSD rose 0.51% throughout Thursday’s trading. During today’s European trading session, the British GDP will be released. A softer reading of the British GDP could spark a rally for the British Pound.

Gold surged 1.1% throughout yesterday’s trading. The Dollar denominated Gold continues to climb above the $1850 per ounce mark as the Dollar continues to weaken.

Economic Data

Currency	Data	Time (GMT + 8)	Forecast
GBP	GDP (MoM)	15:00	-0.3%
GBP	GDP (YoY)	15:00
GBP	GDP (QoQ)	15:00
GBP	Manufacturing Production (MoM) (Nov)	15:00	-0.2%