The USD has been weak for the last 2-3 months but today even with the Treasury yields falling. Although today is the first trading day of the year so nothing is for certain as flow-driven trade dominates. The rally in the dollar speaks only to demand liquidity and the world’s reserve currency I wouldn’t take it as any kind of verdict on the US economy right now.

But, the slowing down in inflation is a sign that central banks will slow down with rate hikes. The European Central Bank has given signs that they will slow down and they did so by delivering a 50 basis points (bps) rate hike in December, after a 75 bps in the previous meeting. So, today’s CPI (consumer price index) inflation from Germany has had some impact on risk sentiment. Risk currencies such as EUR/USD and NZD/USD are around 150 pips down.

German December Prelim CPI inflation Report

• December preliminary CPI YoY +8.6% vs +9.1%  expected
• November CPI inflation was +10.0%
• December CPI MoM -0.8% vs -0.3% expected
• November CPI MOM was -0.5%
• HICP YoY for December +9.6% vs +10.7% expected
• November HICP YoY  +11.3%
• HICP MoM for December -1.2% vs -0.5% expected
• HICP MoM for November 0.0%

The steeper fall in German inflation was already predicated by the state readings earlier today, and surely owes much to lower energy prices once again. If anything else, the milder weather so far this winter has certainly helped brighten Europe’s prospects. This is also the first back-to-back monthly decline in consumer price inflation in Germany since September 2020.

EUR/USD H1 Chart – The Decline Stopped at the 200 SMA