Eurozone Inflation Eased in December – Daily Brief, January 6, 2022

German Monthly Retail Sales Exceed Forecasts

German retail sales declined in November by 5.9% on an annual basis. The decline came higher than the expectations of a 2.8% decline. On the other hand, monthly retail sales in Europe’s largest economy rose by 1.1%, exceeding expectations for a 1% rise, after recording a 2.8% drop in October.

Eurozone Inflation Falls in December

The inflation rate in the Euro area dropped for the second consecutive month. The annual inflation rate slid to 9.2% in December, its lowest in four months. The fall in inflation is directly related to the drop in energy prices, whereas costs of food, tobacco, alcohol, non-energy industrial goods, and services continue to soar high. Hence, excluding energy prices, inflation in the Euro area rose from 7% to 7.2 %.

Despite the data supporting the drop in the inflation rate, economists believe it is too soon to anticipate a change in policy from the European central bank. This follows the notably hawkish statement by ECB President Christine Lagarde in December, in which she reassured that the bank is not pivoting or turning points but only showing commitment. She added that the bank still has more distance to cover. 

EUR/USD declined to 1.04944 following the data release.

Gold Falls Following US Strong Labor Market Data

Gold prices plunged by more than 1% on Thursday, reaching $1824 per ounce. The drop was pressured after the US data demonstrated the labor market’s strength and reinforced predictions of higher interest rates for longer.

The yellow metal had then cut its losses and inclined to $1833 after the US Federal Reserve’s comments regarding ease of inflation in 2023. 

According to US labor statistics, the number of new unemployment benefit applications dropped to a three-month low last week, while the number of layoffs decreased by 43%.

Dollar Index DXY Nearing its One-Month High

The US dollar index neared its monthly high around Friday, January 6th, after US economic data highlighted a labor market still scarce, which may keep the US Federal Reserve on the path of sharply raising interest rates.

A separate report also revealed that employment in the private sector increased by 235,000 jobs last month, far ahead of expectations for a rise of 150,000.

Against a basket of major currencies, the dollar index jumped 0.9% to its highest level in almost a month at 105.27 overnight. It is also heading for a weekly gain of more than 1.5%, the largest since September.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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