Strong US Inflation Figures Puts the Fed in a dilema

US January inflation figures came out stronger than expected across the board. In light of recent data on production from the US economy, this puts the Fed in jeopardy with regards to the monetary policy going forward as inflation puts an upward pressure on the leading interest rates, which could put a damper on the growth.

Although energy prices showed a drop, food prices were unchanged and core goods and services showed a stronger than expected increase. Current market reaction to the upward pressure in US inflation is increased risk aversion, where the S&P so far has bounced off on first pivot support close to 1900. A break below would give scope for a test of 61.8% retracement in recent daily wave at 1893. . In the German DAX, the 23.6% Fibo around 9335-40 acts as key support, where a break could open up for a test of 9300 and then a re-test of January lows at 9248.

Currency markets have been relatively neutral in response to the upbeat US inflation figures, with EUR/USD ranging 1.1060-1.1140 and USD/JPY 112.70-113.20.

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