The EUR/USD pair saw a bullish surge, moving beyond the 1.0950 mark during the early American trading session on Tuesday. This rise was fueled by the weakening US Dollar, which has been pressured by declining US Treasury bond yields and mixed data from the US.
Economic Data Releases
In the meantime, the EU released the final estimate of the November Harmonized Index of Consumer Prices (HICP), confirming the annual gauge at 2.4%. On a monthly basis, the HICP decreased by 0.6%. The US will release data on November Building Permits and Housing Starts during its session. Additionally, Canada will publish the November Consumer Price Index (CPI), starting a series of inflation updates that will conclude on Friday with the US Core Personal Consumption Expenditures (PCE) Price Index.
Unappealing USD Post-Central Banks’ Scenario
The EUR/USD pair continues its modest weekly rise as the US Dollar remains unattractive following the recent central banks’ activities. Investors are in search of better options.
Despite this, Wall Street ended positively on Monday, with the Nasdaq Composite reaching record highs due to sustained optimism. Nonetheless, the lack of significant macroeconomic data keeps most major pairs within familiar ranges, with the EUR/USD currently hovering around 1.0950.
Commentary from European Central Bank (ECB) Officials
ECB officials observed that there are still considerable uncertainties and downside risks for Eurozone banks. Meanwhile, Governing Council through it’s member stated that expectations of rate cuts were overly optimistic, suggesting investors may have jumped the gun.
Economic Data Releases
In an unforeseen development, US new-home construction witnessed a significant boost in November, reaching a six-month peak. This upswing is attributed to the current scarcity of existing homes in the market, indicating a potential alleviation in the residential real estate crunch. According to government data released on Tuesday, residential starts saw a 14.8% rise last month, hitting a 1.56 million annualized rate. This figure surpassed the median prediction of a 1.36 million pace from a Bloomberg survey of economists.
Meanwhile, Canada’s Consumer Price Index (CPI) recorded a year-over-year increase of 3.1% in November, mirroring the rise observed in October. The CPI was driven by higher prices for travel tours in November. However, this upward trend was counterbalanced by slower price growth for food, coupled with reduced prices for cellular services and fuel oil. Removing the influence of food and energy, the CPI noted a 3.5% increase in November, a slight uptick from a 3.4% rise in October.
US Stocks Show Slight Increase
US stocks experienced a small increase on Tuesday, with the possibility of an eighth consecutive weekly win still in sight. Investors remain optimistic about the potential for interest rate cuts, despite warnings that these hopes may be overblown.
The Dow Jones Industrial Average (^DJI) saw a minute rise of approximately 0.1%. This was closely followed by the S&P 500 (^GSPC), which ascended by around 0.2%. The tech-heavy Nasdaq Composite (^IXIC) outperformed both, leaping by about 0.3% in the early morning trading session.
Federal Reserve’s Stance on Rate Cuts
However, some momentum has been lost from the recent rally in stocks as Federal Reserve officials have attempted to dampen expectations of a rate cut as soon as March. They’ve declared it “premature” to assume the central bank has finished with rate hikes, and indicated that its policy will continue to be driven by data.
Bank of Japan’s Decision on Interest Rates
In other news, the Bank of Japan decided on Tuesday to maintain interest rates below zero, providing no indication of when it might withdraw from negative levels.
US Stock Market’s Reaction to Warnings
Despite these cautionary signs, US stocks have managed to sustain their gains. Investors seem to be disregarding these warnings for the moment. The upcoming update on the Personal Consumption Expenditures price index, which is the Fed’s preferred measure of inflation, is expected to support or challenge the case for quicker and earlier cuts.
Impact of Oil Prices on Investor Sentiment
Investors are also paying close attention to oil prices, as more companies follow BP’s lead in avoiding transits through the Red Sea due to attacks on shipping in this crucial trade route. West Texas Intermediate (CL=F) dropped slightly below $73 a barrel, while Brent crude futures (BZ=F) traded above $78 a barrel.
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