The EUR/USD major registered a significant loss on Friday, hitting its lowest level in three weeks. Latest US economic data shows that core inflation went up in January, reaching the highest annual percentage in three years, firing up arguments about a future rate hike prepared by Fed in the near future.
Looking at Friday’s chart, we can see that the pair traded in the 1.0912 – 1.1069 range, to settle at 1.0932, down 0.0086 or 0.78% from the previous session. Euro has closed lower than its American counterpart for a time in the last week and eight times in the last two weeks. Since the hike to three-month highs earlier this month, the Euro went down more than 3.2% against the US dollar in the last ten sessions. The new EUR/USD support is set at 1.0538 (December 3rd low) and the new resistance at 1.1496 (October 15th high).
Friday morning, the US Department of Commerce released its monthly report. According to fresh figures, personal income and consumer spending went up 0.5% in the month of January, each of them scoring above estimations. With high increases in wages and salaries, the personal income is going up the third time in the last four months, starting early December. On the other side, consumer spending also rose steadily, registering a 1.2% hike in purchases of durable goods. The PCE Index (Personal Consumption Expenditure) rose 1.3% for the month from the earlier 12-month level, and over December’s 0.7. Year on year, the Core PCE went up by 1.7% from January 2015 and 0.3% over December’s reading.
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While in the last three years the Core PCE inflation hit well under Fed’s inflation target, in January this year the reading was at the very high end of the bank’s target range estimation for 2016. Fed’s chair Janet Yellen firmly affirms that the long-term inflation will move as planned, towards the targeted 2% goal, but temporary economic factors such as the record-low energy prices do affect the short-term inflation. At December’s FOMC (Federal Open Market Committee) meeting, the embers agreed that the 2% target on the long term will not be met sooner than 2018.
For this year, any rate hikes coming from Fed will be viewed as bullish for the dollar, as foreign investors will carve in to capitalize on higher yields. On a separate note, the US Commerce Department revised upward Real GDP (Gross Domestic Product) growth in Q4 of 2015, from the initial 0.7% to 1.0%.