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U.S. Dollar Strengthens as Consumer Prices Climb By 0.2% in January

U.S. Dollar Strengthens as Consumer Prices Climb By 0.2% in January

Tzu-Wen Chen, Technical Strategist

THE TAKEAWAY: [Consumer Price Index rose less than expected in January] > [Supports Fed’s view that inflation will be contained] > [USDollar strengthens]

The U.S. Bureau of Labor Statistics reported today that the Consumer Price Index for All Urban Consumers (CPI-U) rose in January by 0.2 percent, the most in four months. Inflation was flat in December and November. This figure falls lower than the median forecast of 0.3 percent, according to a Bloomberg News survey of economists. Core inflation, which excludes the volatility of energy and food prices, rose by 0.2 percent, as had been widely anticipated.

U.S. Consumer Price Index: January 2009 to January 2012

US_Dollar_Strengthens_as_Consumer_Prices_Climb_By_0.2_Percent_in_January_body_Picture_1.png, U.S. Dollar Strengthens as Consumer Prices Climb By 0.2% in January

Chart created using data by Bloomberg– Prepared by Tzu-Wen Chen

On a yearly basis, consumer prices for all items rose by 2.9%, a slight decrease from last month’s 3.0 percent figure and the lowest rate since March 2011. On the other hand, the core rate, excluding energy and food, rose by 2.3 percent to its largest 12-month increase since September 2008. Both yearly figures exceeded expectations of increases by 2.8 percent for all items and 2.2 percent excluding energy and food.

The price report supports Federal Reserve’s Bernanke’s comments that the central bank expects inflation to “remain subdued” due to the “well-anchored inflation expectation, more-stable commodity prices, and substantial slack in labor and product markets”.

EUR/USD 1-minute Chart: February 17, 2012

US_Dollar_Strengthens_as_Consumer_Prices_Climb_By_0.2_Percent_in_January_body_Picture_2.png, U.S. Dollar Strengthens as Consumer Prices Climb By 0.2% in January

Chart created using Strategy Trader– Prepared by Tzu-Wen Chen

Immediately following the data release, the greenback weakened slightly against the euro, dropping 11 pips against the euro in the first few minutes, before seeing a correction as investors digested the data and noted that the latest figures support the Fed’s monetary policies. At the time of this report, the U.S. continued to strengthen against most of the major currencies, and was trading at 1.31696 against the euro.

--- Written by Tzu-Wen Chen DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.