U.S. economy insists on showing the markets that it remains on a recovery mode following the publication of strong inflation data. The Consumer Price Index (CPI) report released on Friday for the month of June revealed an increase by 0.3% on a month-to-month basis and continued its positive momentum of growth for the fifth period in a row. The months February to May also had increases of 0.2%, 0.2%, 0.1%, and 0.4% respectively and June's result strengthened the USD bulls forecasts of an interest rate increase sooner than later. However consumer prices over the last twelve months only increased by 0.1% in June while the same annual index excluding food and energy was higher at 1.8% for the same month.
Federal Reserve (Fed) Chairwoman Janet Yellen fuelled traders' expectations for an interest rate increase by stating within a report for the US House of Representatives Financial Services Committee that this scenario is still a possibility. She also stated that there is growing likelihood of the U.S. employment sector future strengthening, but reported that the U.S. economy's path to recovery is not laid by rose petals because the ongoing trouble of Eurozone's economics combined with China's slowdown of growth are risks not to be taken lightly by anyone.
Indeed, Eurozone's inability to address economic issues of some of its member states, and most importantly fundamental economic disagreements between member states on important decisions and future policies of the EU have been uncovering its fragility. Following the ongoing negotiations between Greece and its creditors for several months now, some investors can easily argue that the scenario of an EU dissolve is not an extreme one any more.
Additional U.S. economic data released on the housing market on Friday supported many investors' perception of a growing U.S. economy. According to the Census Bureau, single-family housing starts during June has increased by 9.8% in relation to the previous month and exceeded expectations by analysts, while building permits for the same period rose by 7.4%. But given the above evidence, Janet Yellen remains reserved about the U.S. economic outlook as she prefers to see more economic improvements and further decrease in unemployment before it will be comfortable for the Fed to proceed with an interest rate increase. The EUR/USD posted some dramatic losses during the course of last week. On Friday only, the rate decreased by 0.5% on the back of the U.S. CPI and housing data. On a weekly basis, the losses were much higher as the world's most popular currency pair nosedived by a whopping 2.8% from the 1.11 level to end trading at 1.08286.
