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US dollar rallies as US inflation soars to 7.5%

currency-newsUS dollar rallies as US inflation soars to 7.5%
The US dollar jumped on Thursday after the latest US inflation print came in much stronger-than-expected.

Meanwhile, the pound is trading in a narrow range so far this morning, with GBP/EUR flat at €1.1888 and GBP/USD stable at $1.3542. GBP/CAD is subdued at C$1.7237, while GBP/AUD and GBP/NZD tick up to AU$1.8974 and NZ$2.0359, respectively.

Looking ahead, will a mixed GDP reading from the UK leave Sterling mostly rangebound today?

What’s been happening?

The publication of the latest US consumer price index saw the US dollar catch some bids yesterday after January’s release reported US inflation rocketed up from 7% to 7.5%, outpacing expectations for a more modest rise of 7.3%.

The hotter-than-expected inflation reading bolstered expectations the Federal Reserve may deliver a half-percentage increase in interest rates next month, the odds of which rose from around 25% to over 90% in the wake of the CPI release.

In addition to being rocked by its negative correlation with the US dollar, the euro was also softened in response to the latest EU growth forecasts.

The European Commission slashed its 2022 growth forecast from 4.3% to 4% on Thursday as it warned ‘stronger than expected inflationary pressures will weigh on households’ purchasing power’ in the coming months.

The pound, meanwhile, struggled to find any strong directional bias on Thursday amidst fresh Brexit jitters and ongoing UK political uncertainty.

What’s coming up?

Kicking off today’s session was the publication of the UK’s latest GDP figures.

Data published by the Office for National Statistics (ONS) revealed the UK economy beat expectations by expanding 7.5% in 2021, but that the emergence of Omicron resulted in growth contracted in December. The data has had a limited impact on the pound so far this morning.

Today’s US data calendar sees the release of the University of Michigan's latest consumer sentiment index. February’s preliminary figures are expected to report a modest improvement in morale, which may offer some support to the US dollar later this afternoon.

In the meantime, confirmation that German inflation slowed in January could exert some pressure on EUR exchange rates as it would support the European Central Bank (ECB) leaving interest rates unchanged for longer.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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