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US dollar storms higher following stronger-than-expected US inflation

currency-newsUS dollar storms higher following stronger-than-expected US inflation
The US dollar skyrocketed on Tuesday as the latest US inflation release turbocharged Federal Reserve rate hike expectations.

Meanwhile, the pound is mostly stuck in a narrow range this morning, with GBP/EUR flat at €1.1534 and GBP/USD steady at $1.1517. GBP/CAD is rangebound at C$1.5171, while GBP/AUD and GBP/NZD have climbed to AU$1.7139 and NZ$1.9223, respectively.

Looking ahead, will a surprise drop in UK inflation limit movement in Sterling today?


What’s been happening?

The US dollar was catapulted higher yesterday with the release of the latest US consumer price index.

August’s CPI release reported headline inflation rose by 8.3%, down from 8.5% in July but ahead of a forecast 8.1%, The accompanying core release also reported a stronger-than-expected uptick in underlying inflation last month.

The hotter-than-expected inflation figures fuelled speculation for a more hawkish turn by the Federal Reserve at its upcoming meetings. USD exchange rates surged as a 75bps hike next week is now seen as all but certain and markets began to price in a 20% chance for a massive 100bps hike.

The strong uptick in the US dollar took a heavy toll on the euro as a result of the strong negative correlation between the pairing.

Additional pressure on the single currency came from the release of the latest ZEW economic sentiment index, which reported a larger-than-expected drop in investor morale this month.

The pound also struggled to find momentum in the wake of the US inflation release as market sentiment soured.

The reversed most of Sterling initial gains which came on the back of a mostly positive jobs report.


What’s coming up?

Kicking off today’s session was the publication of the UK’s own inflation figures.

August’s figures reported domestic inflation unexpectedly slowed in August. This has left the pound muted this morning as the surprise drop relieves some of the pressure on the Bank of England (BoE) to accelerate its tightening cycle.

For EUR investors the focus this morning is likely to be on the Eurozone’s latest industrial production figures, with a contraction in factory output in July potentially denting the euro.

Meanwhile the publication of the latest US PPI release could influence the US dollar this afternoon. If producer prices rise above forecast in August this could lead to additional upside in USD due to how this often feeds through into inflation.
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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