The European session lacked major news releases, leaving the focus on the US session which had a slew of economic data releases. As a result, most major currency pairs were rangebound during the European session until the early US session when volatility spiked in reaction to comments made by St. Louis Fed President James Bullard.
Bullard was speaking on CNBC and suggested that the Fed remove the word “patient” from its next policy statement as he is a strong proponent of raising rates by this summer. He expects the unemployment rate in the US to fall below 5% by the end of this year.
The dollar rallied in response to Bullard’s comments, causing the euro to tumble to 1.1219 from today’s high of 1.1379. The pound fell off an 8-week high of 1.5551 to slip to as low as 1.5410. A second estimate of UK fourth quarter GDP data today was unchanged at 0.5% and had little impact on sterling. Against the yen, the dollar surged to a high of 119.23.
The greenback was given further strength after a slew of US economic data which included, inflation, durable goods orders and jobless claims.
While headline CPI came in negative, the core rate was more stable and gave markets confidence for a Fed rate hike.
On a month-on-month basis, CPI fell by 0.7% after a revised fall of 0.3% in December. Economists expected a drop of 0.6% over the month. In comparison with a year-ago, prices were down by 0.1%, as expected. The core reading was better and increased by 0.2% on the month versus 0.1% expected and 1.6% year-on-year, in-line with economists’ estimates. Core CPI strips out food and energy prices.
Durable goods orders rose in January for the first time in three months, which was a good sign that US businesses are spending. Orders grew 2.8%, above the 1.7% increase expected. This was an improvement from a 3.7% drop in December.
Other US data showed initial jobless claims climbed the most in six weeks, as weekly applications for benefits rose 31,000 to a seasonally adjusted 313,000, compared to 290,000 expected, and more than the previous 283,000.