Hotter Chinese CPI Cools Sentiment in Risk FX

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Higher than expected CPI data cooled the rally in risk assets with high beta currencies all coming off their highs after a very powerful rally yesterday. Chinese CPI printed at 2.5% versus 2.3% eyed as it hit a 7 month high. Much colder than expected winter has caused price gains in food which flowed through to the consumer level. The PPI data on the other hand remained muted as price contracted by -1.9% in December.

The hotter Chinese inflation numbers still remain below the PBOC target of 3.5% and therefore are unlikely to cause any shift in policy, but the news did have an impact on investor sentiment, putting a damper on the massive rally as gains stalled in Asia.

The euro has risen more than 200 points over the past several days but has now stalled ahead of the triple top resistance at 1.3300 while Aussie managed to break through the 1.0550 barrier but is now unable to breach the key 1.0600 level. With little economic data on the docket in Europe except for Manufacturing and Industrial Production out of UK, high beta currencies are likely to see more consolidation for the time being.

Boris Schlossberg
Managing Director

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