EUR/USD
fell considerably on Friday to close the week below 1.08, as hawkish
comments from Federal Reserve vice chairman Stanley Fischer on the
potential rebound of U.S. inflation increased the likelihood of an
interest rate hike by the U.S. central bank next month.
Investors also reacted to sluggish euro zone GDP figures for the
third quarter, which could expedite plans from the European Central Bank
to ramp up its asset-purchasing program.
The currency pair traded between 1.0714 and 1.0817 on Friday before
settling at 1.0764, down 0.0051 or 0.47% on the session. For the week,
the euro remained relatively flat against the dollar after plunging 1.2%
last Friday following a robust October U.S. jobs report. Over the last
month, however, the euro has tumbled more than 5.25% amid indications of
the potential divergence of monetary policies between the Fed and the
ECB.
EUR/USD likely gained support at 1.0673, the low from November 10 and was met with resistance at 1.1496, the high from Oct. 15.
On Thursday evening after the close of trading, Fischer reiterated
that long-term inflation will move back toward the Fed's long-term goal
of 2%, as transitory effects from a strong dollar and low energy prices
continue to recede. Earlier this week, the dollar soared to a
seven-month high as currency traders reacted to last week's stellar U.S.
jobs report from October. Crude futures, meanwhile, slumped to near
six-and-a-half year lows in Friday's session amid further signs of a
glut of oversupply on global energy markets. Inflation has remained
below the Fed's long-term goal of 2% in every month over the last three
years.
In September, the PCE Price Index inched up 0.2% on a yearly basis following a 0.3% gain a month earlier. The Core PCE Price Index,
which strips out food and energy prices, rose by 1.3%, unchanged from
August. The core index is the Fed's preferred gauge for long-term
inflation.
"From the standpoint of the outlook, this transience means that some
of the forces holding down inflation in 2015--particularly those due to a
stronger dollar and lower energy prices--will begin to fade next year,"
Fischer said in a speech at the Fed's conference on Monetary Policy
Implementation and Transmission in the Post-Crisis. "Consequently,
overall PCE inflation is likely on this account alone to rebound next
year to around 1-1/2 percent. And as long as inflation expectations
remain well anchored, both core and overall inflation are likely to rise
gradually toward 2 percent over the medium term as the labor market
improves further and the transitory effects of declines in energy and
import prices dissipate."
Elsewhere, U.S. retail sales
in October ticked up by 0.1%, two-tenths under consensus estimates due
in part to sharp declines in electronic & appliance purchases and
grocery sales. Core sales, minus auto and gas prices, increased by 0.3% after a flat reading in September. Producer prices,
meanwhile, tumbled 0.4%, amid continued declines in the services
industry. Business inventories, however, rose by a stronger than
expected 0.3% last month.
In Europe, GDP in the third quarter
increased moderately by 0.3%, following a lackluster gain of 0.4% three
months earlier. Analysts expected to see economic growth in the euro
zone of 0.4% last quarter. Disappointing international trade data served
as a drag on growth in Italy and Germany, while restraining further
upward movement in France. One day after ECB president Mario Draghi sent
strong hints that the Governing Council could expand its quantitative
easing program when it meets next month, the downbeat data could provide
additional pressure on the central bank to act.
The U.S. Dollar Index,
which measures the strength of the greenback versus a basket of six
other major currencies, closed the week at 98.90, up 0.33% on the
session.
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