The euro failed to bounce back in Tuesday's (29/November) trading. After being stricken by worsening market sentiment yesterday, the Single Currency was weighed down by the latest inflation data from Germany and Spain.
When this news was written in the middle of the New York session, EUR/USD was observed to be sluggish in the range of 1.0345. Meanwhile, EUR/GBP stuck in the range of 0.8635.
The preliminer inflation report from Germany showed a growth of -0.5 percent for month over Month in November 2022. It was as opposed to an increase of +0.9 percent in the previous month.
Consequently, German inflation corrected from +10.4 percent to +10.0 percent in the period. Spanish inflation was also having the same trend where it was minus in the same period.
50 BP increase is the Most Possible Decision
Price growth was recorded at -0.1 percent on a monthly basis and +6.8 percent on an annual basis. It became a sharp retreat compared to the monthly inflation records of +0.3%.
That number was also sharper than the annual +7.3% in the previous report. Data from the Eurozone's two largest economies eroded local interest rate expectations.
Markets are increasingly confident that the European Central Bank (ECB) will only raise interest rates by 50 basis points in December. It is based on some data appeared lately.
For the ECB, German inflation data as well as a sharp drop in Spanish inflation could be adequate reasons to raise interest rates by 50 bps and not another 75 bps jumbo rise at the December meeting.
Declining Energy Price is a Factor
The possibility above was said by Carsten Brzeski of ING Bank. At the same time, Brzeski predicts German inflation could still rise again in December and the first quarter of next year.
He explained that the decline in inflation this time was mainly due to the decline in energy prices. The declining entertainment service prices after the autumn holiday season is also a reason.
Apart from the turmoil from China, oil prices are also shrouded in uncertainty from other factors. Western countries have gradually begun to reduce dependence on Russian oil since the end of the first quarter.
The plan is that Russian oil purchases will be completely halted in December in an effort to suppress Russian military attacks on Ukraine.
OPEC+ Next Meeting is on December 4
The G7 and EU representatives plan to hold a meeting to discuss Russian oil sanctions on November 25. But unfortunately, the meeting was cancelled without any further details.
Meanwhile, OPEC+ will also hold a meeting on December 4 this year. It means just a day before the start of sanctions on Russian oil imports.
Some analysts predict that OPEC's decision on production policy will determine the direction of oil movement going forward. That is why; market participants will wait for that moment.
Elsewhere, Contrary to yesterday's conditions, today the US Dollar weakened. Investors digest the condition of the US economy with slightly different assessments.
Inflation Continues to Decline
According to David Meger as an analyst at High Ridge Futures, investors are already beginning to see the end of rate hikes. That is as inflation is likely to continue to decline in the future.
Therefore, the potential for a 75 basis point rate hike at the December FOMC meeting, was reduced to a 50 basis point rate hike only. Nevertheless, rising interest rates will restrain the pace of gold price increases.
Although a slightly weaker United States Dollar supports gold at the moment, the analyst still expect that further Fed rate hikes will again weigh on gold prices over the coming weeks.
That opinion was said by UBS analyst Giovanni Staunovo. Gold's gains tend to be hindered by the issue of rising interest rates. Investors prefer yields that yield when interest rates are high.