The dollar is up against all of its major competitors on Friday, after consumer prices for December turned in their biggest drop in six years. The U.S. currency rallied after the report, but began to gave back some of those gains after consumer sentiment jumped to an 11-year high.
Reflecting another sharp drop in energy prices, the Labor Department released a report on Friday showing that U.S. consumer prices saw their biggest drop in six years in the month of December. The Labor Department said its consumer price index fell by 0.4 percent in December following a 0.3 percent decrease in November.
While the drop in prices came in line with economist estimates, it reflected the biggest monthly decrease since December of 2008. The continued drop in consumer prices was largely due to another sharp decline in energy prices, which plummeted by 4.7 percent in December after tumbling by 3.8 percent in November.
With utilities output showing a sharp pullback, the Federal Reserve released a report on Friday showing a modest drop in U.S. industrial production in the month of December. The report said industrial production edged down by 0.1 percent in December after surging up by 1.3 percent in November. The modest pullback matched economist estimates.
Consumer sentiment in the U.S. has seen a significant improvement in the month of January, according to a report released by the University of Michigan on Friday. The report showed that the preliminary reading on the consumer sentiment index for January came in at 98.2 compared to the final December reading of 93.6. Economists had expected the index to climb to a reading of 94.1.
With the much bigger than expected increase, the consumer sentiment index reached its highest level since January of 2004.
Investors are looking forward to the European Central Bank meeting on January 22, where is it expected that further quantitative easing will be announced. European Central Bank Executive Board member Benoit Coeure said quantitative easing should be big to be efficient. “The only thing I can say is that for it to be efficient it would have to be big,” Coeure said in an interview with the Irish Times.
In an another interview with the Liberation daily, Coeure said the bank will take in to account the U.S. and British experiences to determine the amount of bonds to buy in order to restore confidence in the inflation target. The dollar climbed to an 11-year high of $1.1460 against the Euro Friday, but has eased back to around $1.1535 in the afternoon.
Eurozone inflation turned negative in December, as initially estimated, for the first time in more than five years in December, final data from Eurostat showed Friday.
The Harmonized Index of Consumer Prices fell 0.2 percent year-on-year in December, reversing the 0.3 percent rise in November. This was the biggest fall seen since September 2009, when prices decreased 0.3 percent.
Germany’s inflation eased to its lowest level in five years, dragged by lower energy costs amid the falling oil prices. The EU measure of inflation slowed in December as estimated in the flash estimate to reach its lowest level in more than five years, final figures from Destatis revealed Friday.
The harmonized index of consumer prices rose 0.1 percent year-on-year in December, confirming the preliminary estimate, following a 0.5 percent increase in the previous month. It was the lowest figure since October 2009, when prices fell 0.1 percent.
The greenback rebounded from yesterday’s 7-month low of $0.7162 against the Swiss Franc to a high of $0.8808 on Friday. The U.S. currency is currently hovering around $0.8625.
The Swiss National Bank shocked the markets Thursday after it abandoned its currency “ceiling” of CHF 1.2 per euro as it considers it “no longer justified” in the new situation. The bank also lowered interest rates further into negative territory to make sure that the termination of the “minimum exchange rate does not lead to an inappropriate tightening of monetary conditions.”
The buck climbed to a 2-day high of $1.5074 against the pound sterling Friday, but has since retreated to around $1.5135.
The dollar rose to an intraday high of Y117.767 against the Japanese Yen Friday, but has slipped back to around Y117.500 in the afternoon.
An index measuring tertiary industrial activity in Japan was up a seasonally adjusted 0.2 percent on month in November, the Ministry of Economy, Trade and Industry said on Friday, coming in at 99.2. That was in line with expectations following the 0.2 percent decline in October.
Japan’s labor cash earnings rose by 0.1 percent from last year to JPY 277,152 in November, final data from the Ministry of Health, Labour and Welfare showed Friday. Earlier the ministry estimated a decline of 1.5 percent for November, the first annual fall in nine months.