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USD rallies as US inflation soars

currency-newsUSD rallies as US inflation soars
The US dollar rallied on Wednesday as investors reacted to a stunning rise in US inflation last month.
 
Meanwhile, the pound is off to a slow start so far this morning, with GBP/EUR slipping to €1.1618 and GBP/USD muted at $1.4058. GBP/CAD is rangebound C$1.7063, while GBP/AUD and GBP/NZD hold steady at AU$1.8197 and NZ$1.9615, respectively.
 
Looking ahead, will the latest US initial jobless claims drive the US dollar even higher today?
 

What’s been happening?

The US dollar enjoyed strong support through yesterday’s trading session following the publication of the latest US consumer price index (CPI).
 
April’s CPI figures printed well above expectations with headline inflation rocketing up from 2.6% to a shocking 4.2%, blowing past expectations for a more modest rise to 3.6% and rising to its highest levels since September 2008.
 
The shockingly fast acceleration of inflation prompted USD investors to question whether the Federal Reserve will be able to maintain its plans to keep interest rates on hold, which alongside a surge in US Treasury yields propelled the US dollar higher.
 
This jump in the US dollar came at the expense of the euro, with the negative correlation between the pairing dragging on the single currency.
 
However, helping to limit the downside in EUR exchange rates was the European Commission's upgraded economic projections for 2021, which saw the EC raise its Eurozone growth forecasts from 3.8% to 4.3%.
 
The pound, meanwhile, ticked higher on Wednesday in the wake of the UK’s latest GDP figures as they beat expectations.
 
According to data published by the Office for National Statistics (ONS), the UK economy contracted 1.5% in the first quarter against forecasts growth would shrink by 1.6%.
 

What’s coming up?

Looking ahead, the most notable data release today will be last week’s initial jobless claims in the US.
 
This could see the US dollar move higher again this afternoon if new claims continued to fall.
 
Meanwhile, GBP investors will look to a speech by Bank of England (BoE) Governor Andrew Bailey for fresh impetus today.
 
Finally, in the absence of any notable Eurozone data releases, the euro could find itself on the defensive again today, especially if the US dollar continues to strengthen.
 
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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