North American Summary and Highlights 15 January

North American session

December US CPI with a 0.4% increase was in line with expectations overall, but the ex food and energy gain of 0.2%, 0.225% before rounding, was on the low side of consensus, and the USD slipped, while USTs and equites rallied. Fed commentary after the release from Barkin, Williams and Goolsbee expressed cautious optimism, and the UST gains were largely sustained. Despite this USD gains were largely erased with the USD ending close to pre-data levels. 

EUR/USD, after bouncing to 1.0350 ended near pre-data levels around 1.03, while GBP and CAD made only marginal gains. AUD/USD, rising to .6230 from .62 performed better than most. USD/JPY fell to around 156.50 from near 157 ahead of the data.  

European morning session 

The USD was generally weaker through the European morning, although losses were generally modest. USD/JPY was the biggest mover, dropping around half a figure to 156.80, while EUR/USD gained just 10 pips to 1.0305. GBP/USD managed 20 pips to 1.2225, and there were similar small gains in AUD and CAD. 

The main news on the morning was the December UK CPI data. Consensus was for headline CPI to remain unchanged at November’s 2.6%, but there was a drop to 2.5%, very similar to EZ headline inflation.  This December figure was driven by higher petrol costs while the headline masked a drop in both core and services inflation of 0.3% and 0.6% respectively, the almost three–year low of 4.4% in services thereby providing a much more reassuring message than the November data. Looking at the CPI details, adjusted data also painted a much softer picture than base-effected y/y numbers, but EUR/GBP nevertheless only gained briefly, and finished the morning slightly lower at 0.8430, despite the data knocking almost 10bps of UK front end yields.  

Other data was much as expected, with the German annual GDP data showing a 0.2% decline, suggesting a 0.1% decline in Q4.