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US dollar to rally on surging US inflation?

currency-newsUS dollar to rally on surging US inflation?
The pound, euro and US dollar all lacked any strong directional bias on Wednesday as investors attempted to limit bets ahead of today’s US inflation print.

Meanwhile, the pound is rangebound so far this morning, with GBP/EUR flat at €1.1852 and GBP/USD stable at $1.3544. GBP/CAD is muted at C$1.7164, while GBP/AUD and GBP/NZD hold steady at AU$1.8846 and NZ$2.0238, respectively.

Looking ahead will we see another acceleration of inflation help push the US dollar higher this afternoon?

What’s been happening?

The pound made tentative gains at the start of yesterday’s session, but quickly found these reversed in the wake of comments from Bank of England (BoE) Chief Economist Huw Pill.

In a speech titled ‘Monetary policy with a steady hand’, Pill suggested the BoE’s monetary policy committee is currently in the ‘very uncomfortable position’ of predicting inflation trends and that the bank’s interest rate outlook was uncertain beyond the next few months.

The euro was also subdued on Wednesday after Germany’s latest trade figures reported the country’s trade surplus fell to a one-year low at the end of 2021.

Finally, a drop in US Treasury yields and a prevailing risk-on mood limited demand for the safe-haven US dollar yesterday, leaving it to trend in a narrow range in spite of growing expectations the Federal Reserve could deliver a rate hike of 50bps points in March.

What’s coming up?

Centre stage today will be the publication of the latest US inflation figures.

January’s figures are expected to report domestic inflation continued to accelerate, with analysts forecasting inflation will have jumped to a dizzying 7.3% after climbing to a 40-year high of 7% at the end of 2021.

Another acceleration of US inflation may reinforce expectations for an aggressive rate hike from the Federal Reserve next month and could propel the US dollar higher.

Later this evening a speech by BoE Governor Andrew Bailey will be in the spotlight, with the direction of the pound likely to be dependent on how hawkish a tone he strikes.

In the meantime, EUR investors will look to speeches by European Central Bank (ECB) policymakers for fresh impetus of movement.
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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