On January 14th, St. Louis Federal Reserve President Musalem stated on Tuesday that he saw little reason to ease monetary policy further in the near term, as the Fed's policy rate is already at a level "close to neutral," neither stimulating the economy nor significantly restraining it. Musalem noted that current monetary policy is in a "good place," offering flexibility to adjust in either direction. He estimated that the current real policy rate, after adjusting for inflation, is approximately 1%. Against this backdrop, he deemed it unwise to shift monetary policy to a clearly accommodative stance at this time. Discussing the economic outlook, Musalem indicated that, regarding risks, the labor market faces some downside risks, while inflation confronts upside risks. However, he expects the US labor market to remain roughly stable at current levels, and inflation is anticipated to continue moving towards the Fed's 2% target. US economic growth this year is projected to be at or slightly above its potential rate. On interest rate policy, he supported the Fed's decision to cut rates last December. Citing relevant research from the St. Louis Fed, he mentioned that the proportion of businesses planning to hire this year has declined, while the proportion intending to reduce their workforce has increased.
Additionally, Richmond Federal Reserve President Thomas Barkin said on Tuesday that the December inflation data was "encouraging," but he also pointed out that inflation often sees significant increases at the start of the year, expressing hope that inflation levels would remain moderate in the coming months. Speaking to the CFA Society in Washington, Barkin stated, "I think the current situation is in a delicate balance." He mentioned that while the inflation rate is above the target level, it does not appear to be accelerating, and the unemployment rate is not spiraling out of control. "No one wants inflation expectations to become entrenched, and no one wants the labor market to deteriorate further," Barkin said, adding, "and it's possible that neither of these things will happen." Data released by the US government on Tuesday showed the Consumer Price Index (CPI) rose 2.7% year-on-year in December. Barkin described this data as "encouraging" because inflation did not rebound as some had expected.
Data to be watched today include the US Monthly Retail Sales for November, the US Current Account for the third quarter, the US annual PPI for November, and the US Annualized Total Existing Home Sales for December.
Gold/USD Gold edged lower in a choppy session yesterday, closing slightly down on the daily chart, with the spot price currently trading around 4638. Besides profit-taking exerting some downward pressure on gold, the US CPI data meeting market expectations during the period, which reinforced expectations of the Fed pausing rate cuts, was also a key factor weighing on gold. However, lingering risk-averse sentiment in the market limited the extent of gold's decline. Focus today is on resistance around 4680, with support near 4600.
USD/JPY USD/JPY climbed higher in a volatile session yesterday, breaking through the 159.00 level to hit a fresh 18-month high, with the spot price currently trading around 159.30. Besides the US Dollar Index's advance, supported by multiple favorable factors, being the main driver behind the pair's rise, concerns over political uncertainty in Japan also provided some support. Furthermore, cooling expectations for a Bank of Japan interest rate hike contributed additional upward pressure. Focus today is on resistance near 160.00, with support around 158.50.
AUD/USD The Australian Dollar drifted lower in a fluctuating session yesterday, closing marginally down on the daily chart, with the spot price currently trading around 0.6690. The primary factor pressuring the Aussie was the strengthening US Dollar Index, which found support from US CPI data meeting expectations, thereby solidifying the view that the Fed will pause rate cuts. Additionally, heightened risk aversion in the market also exerted some downward pressure on the commodity-linked Australian Dollar. Focus today is on resistance near 0.6800, with support around 0.6600.
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