US Economic Data and Focus for the Week
The US economic data slate is relatively empty on Monday, with the week’s attention primarily directed towards the personal consumption expenditures price index, the Federal Reserve’s preferred gauge of inflation, due to be released on Friday. This data is expected to indicate a decrease in consumer price pressures. Additionally, Chicago Fed President Austan Goolsbee and Raphael Bostic are scheduled to express their views on future policy, with Goolsbee’s remarks slated for later Monday and Bostic’s for Tuesday. Market analysts at ING remarked that the final few days of trading activity before the Christmas holiday will likely revolve around the “tug of war” between Fed officials attempting to temper rate cut speculation and investors who feel validated in their dovish bets based on last week’s Dot Plot projections.
Bank of Japan Policy Meeting and Uncertainty
Meanwhile, USD/JPY traded at 142.30, up 0.1%, as the Japanese yen relinquished some of its 2% gains from the previous week. The Bank of Japan will conclude its two-day monetary policy meeting on Tuesday, but traders remain uncertain about when the dovish central bank will begin to unwind its ultra-loose policy settings. ING analysts noted that bank officials have already dampened rate hike expectations for this month by referring to such a move as still being premature. However, as investors actively bet on the end of negative rates in January, the language used during this meeting will significantly impact the short-term performance of the yen.
Euro Shows Strength Amidst Concerns About European Economy
EUR/USD rose by 0.3% to 1.0922, with the euro being lifted by relatively hawkish comments from the European Central Bank last week in comparison to the dovish shift by the Fed. Nevertheless, the single currency continues to be weighed down by a deteriorating growth outlook in the eurozone, as exemplified by a surprising decline in German business morale in December, according to data from the Ifo institute. The Ifo business climate index stood at 86.4 this month, down from a revised reading of 87.2 in November. Though this represents a decrease from the previous month, it remains more than double the Bank of England’s medium-term target of 2%, pushing rate cuts further into the future.
Other Currency Movements
Elsewhere, USD/CNY recorded a 0.2% increase at 7.1318, while AUD/USD rose by 0.6% to 0.6734. The Australian dollar, known as a major indicator of risk sentiment, remained in a positive state.