The data from the U.S. Bureau of Labor Statistics presented a mixed picture, capturing both an unexpected rise in headline inflation and some easing in core inflation.
In December, headline CPI increased by 0.4%, surpassing the anticipated 0.3% largely due to energy prices which surged by 2.6%.
Meanwhile, core CPI—which excludes food and energy—rose by 0.2%, slightly below the forecasted 0.3%. It’s a slight dip from the regular 0.3% upticks observed recently!
Year-on-year, headline CPI edged up to 2.9% from November’s 2.7%, while core inflation slipped to 3.2% from 3.3%. This indicates that underlying price pressures might be easing more quickly than initially predicted.
You can find more in the official U.S. CPI Report for December 2024.
A closer look also showed:
– Energy costs making their biggest nine-month jump at 2.6%
– Food prices experiencing moderate growth
– Shelter costs gradually slowing down
– Service sector inflation, excluding housing, showing signs of cooling down
Interestingly, the CME FedWatch tool recorded a brief shift in traders’ expectations, pricing in about two interest rate cuts by the year’s end, compared to predictions of a single cut before the CPI announcement. Although a first cut is still expected in June, the probability of a second cut has risen notably.
Regarding the U.S. Dollar versus Major Currencies, here’s a quick overview:
The U.S. dollar, initially maintaining its position just above early lows before the CPI release, took a sharp dip across the board as traders began anticipating more Fed rate cuts.
Even though the headline inflation surpassed expectations, the U.S. dollar weakened broadly as the focus shifted to the softer core numbers.
The dollar saw significant declines against “risk” currencies like the British pound and the Australian dollar and faced losses against most major currencies.
However, the selloff wasn’t long-lived. Within an hour, the dollar steadied and began regaining ground.
Several factors likely supported its rebound: persistent inflation in certain services, reduced expectations of Fed rate cuts, and possibly a classic “sell the rumor, buy the news” reaction.
By the close of the European session, the U.S. dollar had recovered, sitting near its levels just before the CPI data was released.
