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Euro strength was still the name of the game for the first few hours of the New York session before profit-taking led to dips.

The spotlight then turned to the dollar when PPI figures fell short of estimates and spurred weaker CPI expectations. On the flip side, the higher-yielding Kiwi took advantage of the weaker dollar to rally across the board and take its Aussie buddy along with it.

  • U.S. headline PPI down by 0.1% vs. projected 0.2% uptick
  • U.S. core PPI down by 0.1% vs. estimated 0.2% gain
  • U.S. initial jobless claims up to 261K vs. 246K consensus
  • U.S. federal budget deficit narrowed from $138.5B to $23.2B
  • FOMC member Dudley: Strong case for more rate hikes in 2018
  • Dudley: Three rate hikes this year could be a reasonable starting point
  • Dudley: Tax cuts to provide short-term boost but long-term risks

Major Events/Reports

Weak U.S. producer prices

The PPI numbers are in and things aren’t looking so good for overall inflation. Both the headline and core readings posted 0.1% dips instead of the estimated 0.2% upticks for December, reflecting the absence of pass-through costs to consumers.

Components of the report revealed that the decline was mostly due to weaker final demand services, which posted its first drop after nine consecutive monthly gains. In particular, the fall was led by index for automotive fuels and lubricants retailing, which fell 10.7%.

Analysts noted that this downside surprise was a bit of a head scratcher given how commodities have been on the rise in the past month and therefore should have spurred higher energy costs. To top it off, the dollar also weakened for the most part of December, which should have also propped producer prices up.

Return of risk appetite?

U.S. equities were able to get back on their feet and allow indices to resume their climb, likely spurred by positive expectations for the Q4 earnings season kicking off today.

  • Dow 30 index is up 205.60 points to 25,574.73 (+0.81%)
  • S&P 500 index is up 19.37 points to 2,767.56 (+0.70%)
  • Nasdaq is up 58.20 points to 7,211.78 (+0.81%)

Crude oil price gains also buoyed energy stocks higher for the session. Brent crude oil surged past the $70 per barrel barrier briefly then closed at $69.26 per barrel. WTI crude oil climbed to $63.80 per barrel, its highest level since December 2014.

Major Market Mover(s):

EUR

The euro sustained its run for the first half of the U.S. session before retreating slightly towards the end of the day while traders cashed in.

EUR/USD peaked at 1.2059 then slid back to 1.2033, EUR/JPY climbed from 133.30 to a high of 134.35 then dipped to 133.66, EUR/GBP is up to .8893, and EUR/CAD advanced to the 1.5100 handle.

USD

Dollar disappointment was evident when the PPI report was printed and FOMC member Dudley’s optimistic remarks did little to cheer the currency up.

USD/JPY slumped from 111.72 to a low of 111.07, USD/CHF is down from .9794 to a low of .9732, GBP/USD reached a high of 1.3555, and USD/CAD fell to 1.2525.

NZD

The higher-yielding Kiwi took advantage of dollar weakness and the general pickup in risk appetite while the Loonie lagged behind, likely on persistent NAFTA jitters.

NZD/USD surged to a high of .7249, NZD/JPY soared from the 80.50 area to a high of 80.89, GBP/NZD slumped to 1.8650, and NZD/CAD is up to .9098.

Watch Out For:

  • Chinese trade balance (surplus to shrink from 264B CNY to 237B CNY)
  • 5:00 am GMT: Japanese Economy Watchers Sentiment index (55.1 previous, 55.2 expected)