·Mixed US PPI adds to uncertainty over Fed rate cuts
·U.S. dollar rises as inflation concerns persist
·European rate cuts hit euro and Swiss franc hard
·UK GDP shrinks for second month, pound also falls
Uncertainty over the direction of Fed policy has increased as consumer and producer price index (PPI) data released this week raised concerns that inflation could be a problem for policymakers in 2025. Yesterday's PPI data added to the uncertain outlook presented by Wednesday's consumer price index (CPI) report.
The month-on-month increase in U.S. PPI in November was twice as high as expected, and although this was mainly due to a surge in egg prices caused by an outbreak of avian influenza, it still highlighted continued upward pressure on prices. However, excluding food and energy, the monthly PPI increase was in line with expectations, but another core indicator was lower than expected.
However, hopes of abating inflation are waning, and although this week's data did not prevent the Fed from cutting interest rates at the December Federal Open Market Committee (FOMC) meeting, the outlook for next year is not optimistic.
If the Fed cuts rates by 25 basis points next week as expected, investors expect only two more rate cuts in 2025.
Pricing for rate cuts has led to a steepening of the U.S. yield curve, with the 10-year Treasury yield breaking above 4.3% for the first time in more than two weeks, driving the dollar's strong gains. Meanwhile, concerns about high government borrowing have fueled the rebound in yields.
The dollar is currently trading near a three-week high against a basket of currencies, limiting gold's gains, with weekly gains expected to be around 1%.
However, Wall Street stocks did not suffer a heavy blow due to a surge in weekly jobless claims yesterday, and economic data may still support the need for the Federal Reserve to significantly ease monetary policy in the coming months.
However, this week's rebound in technology stocks has mainly supported U.S. stocks, and if the rebound in technology stocks fails, Wall Street may see a sharp correction.
Asian stocks rose and fell on Friday, while European stock indexes rose slightly. Concerns about China's stimulus plan next year continued to suppress market sentiment.
Senior Chinese officials concluded their Central Economic Work Conference this week, and while the government promised to stimulate consumption and cut interest rates, the lack of details on the plan inevitably disappointed investors.
In the foreign exchange market, the euro fell to a two-and-a-half-week low after yesterday's ECB meeting and is still trying to recover. The ECB cut interest rates by 25 basis points as expected and hinted at further rate cuts. But ECB President Christine Lagarde did not show a completely dovish stance at the press conference, which provided some support to the euro.
The same is not the case with the Swiss Federal Reserve, which cut interest rates by 50 basis points yesterday, a larger-than-expected reduction. The Swiss franc fell about 1.8% against the dollar this week.
The pound was also under pressure after the UK's gross domestic product (GDP) data released today was lower than expected. The UK economy shrank for the second consecutive month in October, sparking market speculation that the Bank of England may be more dovish than expected at its meeting next week.
The yen was the worst performer on Friday, and selling sentiment continued against the backdrop of the Bank of Japan hinting at no policy action next week. Meanwhile, despite an upbeat Tankan business survey, the yen was unable to stem its slide.