The US currency was traded sideways almost the entire first half of last month. The Fed announced the rate hike planned for next year at the meeting on December 17. Also the fallen CPI in November was released, indicating the drop from 1.7% to 1.3% yoy. It supported the Fed’s plans from a fundamental point of view. Investors deem that the rate hike wouldn’t lead the consumer prices to climb above the target level of 2%. A week later, more positive reports were published on December 23. The third estimate of Q3 US GDP upped from 3.9% to 5%.
Apart from the US economic data, the reports from the European Union were particularly bad. Inflation in November was 0.3%, and in December it was negative (-0.2%). As the economic growth indicated a lower pace, which in November amounted to 0.8% in annual terms, we assume that deflation hits the European economy. Of course, all these factors contributed to the euro depreciation. Another negative factor adding pressure on euro was the uncertain policy conducted by the ECB, which first announced the immediate launch of euro printing for the economy stimulation, but later postponed this issue. The bank is expected to announce the “quantitative easing” at the next meeting on January 22. The second factor for fallen euro was the political instability in Greece. The country has a chance to leave the European Union in case of non-conformance with the scheduled repayment of the public debt. A number of Greek parliamentary parties approve the need to revise relations with foreign investors. A snap parliamentary election will be held on January 25. As a result, euro tumbled 4.5% against the US dollar in December.
Japanese economy has entered the recession period. The Q2 GDP tumbled 6.7% and in the third quarter it slipped another 1.9%. However, the yen dipped only 1.3% against the US dollar in December. Investors assume that the double plunge in global oil prices would influence the Japan’s economy in the most favourable way. The same applies to China.
The economic calendar for January:
January 9 – Labor market data;
January 14 – Retail Sales;
January 16 – CPI and Industrial Production.
January 22 – ECB Press Conference;
January 26 – Retail Sales;
January 30 – CPI.
January 19 – Industrial Production;
January 25 – Trade Balance;
January 30 - CPI.