Image source: Yegor Larin © 123RF.com
The yearly inflation rate in the US has tumbled by the massive 1.2 per cent in April, which underscores the heavy toll from the coronavirus crisis and the national lockdown that is being exerted on the American consumer.
The findings of the US Bureau of Labor Statistics' economic report missed the consensus forecasts, which anticipated a drop to 0.4 per cent in April. Instead, the overall inflation rate was revised down to 0.3 per cent from the 1.5 per cent that were recorded in March.
The newest inflation data signifies the underlying deterioration in the US price stability, which is caused by severely impeded consumer spending coupled with the unprecedented tumble of oil prices last month.
US Inflation Rate. Image source: TradingEconomics.com
The extremely low prices of crude oil damaged the utilities and transportation industry, as well as the construction and manufacturing sectors, leading to considerable loss of jobs. This was demonstrated in the last ADP employment report.
Discounting the impact of essential products hoarding by individuals in the wake of the US lockdown, retail sales have been unusually subdued over the last weeks, which is the result of diminished consumer spending.
US Retail Sales. Image source: TradingEconomics.com
This, in turn, is affecting the price stability in the country, as people continue to be following the policies of social distancing by staying mostly at home. The consequence of this being the diminished levels of spending within the economic circulation.
Near-negative inflation is a significant concern for the Federal Reserve, which now has to weigh in on the newly downgraded prospects for economic growth.
At its last meeting, the FOMC did not implement any major changes to the underlying monetary policy but expressed commitment to intervene by increasing the scope of its asset-purchasing program if it deems it necessary at a future date.
Given the disquieting recent developments, the FED might be hardpressed to step up on its efforts in order to accommodate the underlying economic activity even more. Increasing the liquidity levels is likely going to alleviate the short-term market pains, but this could subsequently strain the value of the dollar.
Meanwhile, the greenback has depreciated against the Euro by nearly 0.60 per cent so far during today's trading session. The EURUSD is currently on the verge of establishing a new bullish upswing.
As can be seen on the hourly chart below, the pair is about to test the strength of the minor resistance level at 1.08800, while the MACD illustrates the rising bullish momentum in the short run.
If the upswing manages to break out above the resistance, the next logical target would be the major resistance level at 1.09880.
EURUSD 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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