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US dollar to weaken as inflation slows?

currency-newsUS dollar to weaken as inflation slows?
The US dollar ticked lower on Tuesday, undermined by positive risk flows and softer US inflation expectations.

Meanwhile, the pound is trading sideways at the start of today’s session, with GBP/EUR flat at €1.1834 and GBP/USD stable at $1.2086. GBP/CAD is rangebound at C$1.5563, while GBP/AUD and GBP/NZD holding steady at AU$1.7354 and NZ$1.9208, respectively.

Coming up, all eyes will be on the latest US consumer price index today. Will a slowing of inflation extend the US dollar’s losses this afternoon?

What’s been happening?

The US dollar ticked lower during yesterday’s European trading session, with demand for the safe-haven currency being undermined by a broadly bullish market mood.

Further limiting the appeal of the ‘greenback’ were easing US inflation expectations.

However the US dollar’s losses were ultimately limited in scope, with an uptick in US Treasury yields and ongoing US-China tensions over Taiwan capping the ‘greenback’s losses. 

This dip in the US dollar helped to bolster the appeal of the euro on Tuesday, thanks to the negative correlation in the world’s most traded currency pairing.

However the single currency’s gains were capped in the wake of a report from the Employment Research (IAB) in which it forecast the war in Ukraine could cost the German economy €260bn by 2030.

The pound, meanwhile, benefited from some hawkish comments from Bank of England (BoE) deputy governor, Dave Ramsden, in which he suggested the bank will probably need to continue to raise interest rates in order to combat inflation.

What’s coming up?

Centre stage today will be the publication of the US consumer price index.

Today’s figures could extend the recent downtrend in the US dollar as economists forecast the latest CPI release will report US inflation slowed from 9.1% to 8.7% in July.

This could temper expectations for another 75bps interest rate hike from the Federal Reserve next month.

In the meantime, the euro may struggle to advance this morning after Germany’s finalised CPI figures confirmed inflation slowed to 7.5% last month.

Finally, with UK data still thin on the ground today, any movement in the pound may remain linked to UK political jitters and ongoing concerns over the cost of living crisis.
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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