In anticipation of Thursday's reading of U.S. consumer prices, European markets are likely to open higher. It is expected that traders from New York to London will be glued to their screens Thursday afternoon as they await the latest consumer price index reading from the Labor Department, which is due to be released at 13:30 GMT. In fact, many will be watching trading closely before the numbers even hit, because last month, traders saw a dramatic spike in trading volume in 10-year Treasury futures leading up to the release of the Federal Reserve's preferred inflation measurement, the CPI, in the 60 seconds before the release of that figure. Based on Bloomberg Economics' forecast, it is expected that CPI would slow to 6.5%, which would support a quarter-point increase.
Because of a sharp drop in gasoline and energy prices, consumer inflation is expected to have decreased slightly in December from the previous month. However, the annual growth rate will likely remain uncomfortably high.
A monthly decline of 0.1% in the consumer price index is now expected by economists. Nonetheless, inflation is expected to rise at a rate of 6.5% over the previous year. In November, the index increased by 0.1%, whereas year-over-year, it rose by 7.1%. Nevertheless, the CPI is well below June's peak rate of 9.1%.
The core CPI, excluding energy and food, is forecast to climb 0.3% in December and gain 5.7% on a yearly basis. Core CPI increased 0.2% in November and 6% on an annual basis.
As traders continue to bet on the central bank's next meeting raising rates by just a quarter point, some economists expect the Fed funds rate to be raised by a half percentage point. Market expectations for a 50 basis point increase are just 20%.
While the US Dollar licks its wounds amid weaker US Treasury bond yields, EUR/USD continues to extend its bullish momentum to 1.0800, awaiting Thursday's US CPI data.
The USD/JPY is continuing its downward slide from its high of 132.48, heading toward 131.00. Despite the lack of bullish conviction in the intraday move, the USD/JPY pair edged higher on Wednesday and moved closer to the top of its weekly range. During the early European session, the pair held steady below the mid-132.00s due to diverging forces. It was reported that at next week's policy meeting, the BoJ would review the side effects of massive monetary easing.
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