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  • Writer's pictureSieracki Milosz

US November Inflation Report: Market Impact and Analysis

Market Impact and Analysis December 13

The November inflation report from the US has had a significant impact on global financial markets, leaving investors and traders alike eagerly anticipating the Federal Reserve's last policy announcements of the year. We will delve deep into the key takeaways from the latest inflation data, analyze how major currencies have responded, and provide insights into what lies ahead in the financial landscape.

Understanding the CPI and Core CPI

The Consumer Price Index (CPI) is a critical economic indicator that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. In November, the CPI in the US rose by 3.1% on a yearly basis, in line with expectations. However, it's essential to look beyond the headline figure and consider the Core CPI, which excludes volatile food and energy prices. The Core CPI remained steady at 4%, matching market consensus.

The US Dollar's Rollercoaster Ride

The immediate reaction to the CPI readings sent shockwaves through the foreign exchange markets. The US Dollar Index (USD) experienced wild fluctuations but eventually stabilized below the 104.00 mark. This turbulence had a ripple effect on global currencies, leaving market participants on edge.

The 10-Year US Treasury Bond Yield

Another crucial indicator affected by the inflation report was the benchmark 10-year US Treasury bond yield. It retreated to the 4.2% area, a level closely watched by investors as an indicator of economic health and inflation expectations. The bond market's reaction, in turn, influenced Wall Street's main indexes, which ultimately closed in positive territory.

As the week progressed, the 10-year yield continued to hover around 4.2%, reflecting ongoing uncertainty in the financial markets. The USD Index remained relatively stable near the 104.00 level, awaiting further developments.

The Fed's Policy Outlook

One of the most eagerly anticipated events following the inflation report was the Federal Reserve's policy announcement. The Fed was widely expected to maintain its policy rate at 5.25%-5.5%. However, the real focus for investors was on the "dot plot" - the Summary of Economic Projections (SEP). This crucial document provides insights into the Fed's expectations for future interest rate changes. Investors scrutinized it to decipher the timing of the expected policy shift in the coming year.

The Global Ripple Effect

The impact of the November inflation report was not limited to the United States. Global markets, too, felt the reverberations. In the early Asian session on Thursday, the Australian Bureau of Statistics released employment data for November, and the University of Melbourne published Consumer Inflation Expectations for December. The Australian Dollar (AUD/USD), which had risen above 0.6600 earlier in the week, erased its gains and closed flat. The pair continued to trade lower, settling around 0.6550.

EUR/USD: A Volatile Reaction

EUR/USD saw a spike to a weekly high above 1.0820 in response to the US inflation data but struggled to maintain its bullish momentum. During the European morning, the pair entered a consolidation phase just below 1.0800. Eurostat's upcoming release of Industrial Production data for October promised further market volatility.

GBP/USD and the UK's Economic Woes

The British Pound (GBP/USD) faced renewed bearish pressure following the UK's economic data release. The Office for National Statistics reported that the Gross Domestic Product (GDP) contracted by 0.3% on a monthly basis in October. Furthermore, Industrial Production and Manufacturing Production declined by 0.8% and 1.1%, respectively, during the same period.

Insights from Japan

Japan's economic data also made headlines as the Tankan Large Manufacturing Index improved to 12 in the fourth quarter from 9. However, the Tankan Large Manufacturing Outlook declined to 8 from 10. The USD/JPY currency pair continued to climb higher during Asian trading hours, nearing the 146.00 mark by the European morning.

Precious Metals: Gold and Silver

Gold and silver prices were not immune to the inflation report's impact. Gold experienced a relatively stable second day of the week but struggled to attract buyers early Wednesday. As of the latest data, XAU/USD traded at its weakest level in three weeks, falling below $1,980.

Silver, on the other hand, initially gained ground following the softer US inflation report. However, it later turned negative, with XAG/USD prices down 0.75% and trading at $22.60.

WTI Crude Oil: A Multifaceted Market

The dynamics in the oil market are indeed multifaceted. Following the US inflation data for November, West Texas Intermediate (WTI) crude oil prices extended their losses. WTI was trading around $68.50 per barrel during the Asian session on Wednesday. The pressure on crude prices stemmed from concerns over potential economic growth slowdown due to prolonged higher interest rates.

In conclusion, the November inflation report from the US had far-reaching implications for global financial markets. While the CPI and Core CPI figures met expectations, the reactions in the currency, bond, and equity markets were anything but predictable. Investors worldwide will continue to closely monitor the Federal Reserve's policy decisions and economic projections to navigate the uncertain financial landscape.

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