Bondda Asia: CPI Data Performs Well, US Dollar Index Edges Slightly Higher

On March 12, Wednesday, data released by the U.S. Bureau of Labor Statistics showed that the U.S. February CPI increased by 2.4% year-over-year, in line with expectations and the previous 2.4%. Month-over-month, it rose by 0.3%, matching expectations and up from 0.2% in the previous month. Core CPI, excluding food and energy, grew by 2.5% year-over-year, also in line with expectations and the previous 2.5%, marking the slowest pace in nearly five years; month-over-month, it increased by 0.2%, matching expectations and down from 0.3%. A sign of tariff transmission is the price of household goods, a broad category including furniture, appliances, and other items, which rose 3.9% over the past 12 months, the largest increase since May 2023. U.S. core inflation in February slowed compared to the previous month, indicating that price pressures had eased before the outbreak of the Iran war. However, the Iran conflict has reignited inflation concerns, as it has driven up costs for oil, gasoline, and fertilizers, potentially increasing the cost of living for American households ahead of midterm elections this year. Economists believe that due to the government shutdown last year, housing cost growth data for October was missing, artificially lowering the current year-over-year inflation figures. However, this downward bias is expected to disappear in the April inflation report, with the measured inflation rate likely to rebound accordingly.

Additionally, Committee member Kazimir stated that the Russia-Ukraine conflict and its impact on inflation could force the European Central Bank to raise interest rates earlier than expected. While the ECB remains in a favorable position and no action is needed at next week’s meeting, Kazimir is concerned that the inflation shocks experienced in 2022 have lowered the threshold for firms to raise prices and for consumers to demand higher wages. He pointed out that the upside risks clearly dominate the economic outlook. In an interview in Frankfurt on Tuesday, Kazimir said, “We need to stay calm for now, but I believe the ECB’s response could be sooner than many imagine. I don’t want to speculate on April or June, but if necessary, we are ready to act at any time.” He added, “If needed, we can respond more quickly. We must remain flexible, and we have learned our lessons.” He argued that the ECB’s quarterly forecasts published this month and in June are not prerequisites for rate hikes. He explicitly stated that even without new forecasts, he has no objection to raising rates. It is clear that further rate cuts are no longer under consideration.

Today’s key data include U.S. January trade balance, U.S. initial jobless claims for the week ending March 7, Canada’s January trade balance, U.S. January building permits monthly initial estimate, and U.S. January new housing starts annualized monthly rate.

Dollar Index

The dollar index rose yesterday, breaking above 99.00, and is currently trading around 99.40. In addition to the easing of Fed rate cut expectations supporting the dollar, the good economic data released during the period also provided some support. Moreover, lingering risk aversion sentiment continues to support the dollar. Today, focus on resistance around 99.80, with support near 99.00.

EUR/USD

The euro declined yesterday, breaking below 1.1600, and is now trading around 1.1550. The main reason for the euro’s weakness is the dollar index’s rise supported by the easing of Fed rate cut expectations and strong economic data. However, strong German economic data and hawkish comments from ECB officials limited the downside. Today, watch for resistance around 1.1650 and support near 1.1450.

GBP/USD

The pound consolidated yesterday, closing slightly lower on the daily chart, and is now trading around 1.3390. Aside from profit-taking weighing on the currency, the dollar’s rise supported by the easing of Fed rate cut expectations and good economic data also contributed to the pound’s weakness. However, the Bank of England’s expected hold in March limited further downside. Today, focus on resistance around 1.3500 and support near 1.3300.