The euro slumped on Thursday following the European Central Bank’s (ECB) latest interest rate decision.
After a lacklustre start to the week, the US dollar was able to gain sharply on the back of inflation data on Thursday.
Overall consumer prices grew 1.9% in August, against predictions of an uptick from 1.7% to 1.8%. Core price growth, which excludes unstable food and energy prices, held at 1.7% despite forecasts of a slip to 1.6%.
Wage growth dipped, however, with average weekly earnings growth slowing from 1.1% to 0.9% year-on-year and average hourly earnings increasing 0.6% in the same period, after previously clocking in at 0.7%.
Nonetheless, markets were cheered by the above-forecast rate of price growth. This prompted a sharp repricing of the odds that the Federal Reserve will opt to hike interest rates in December, with bets rising back above 50%.
Although Friday’s advance retail sales data disappointed, markets continue to expect a December interest rate hike. Sales declined -0.2% in August, against forecasts of 0.1% growth, but the University of Michigan confidence index fell less-than-expected to 95.3 from 96.8.
Odds of a hike currently stand at 55.8%, but this could change dramatically following Wednesday evening’s Federal Open Market Committee (FOMC) interest rate decision. No changes are expected, but the committee could signal that a hike is incoming with its post-meeting commentary.
The approach of the meeting will likely keep USD on muted form over the coming days. Thursday’s jobless claims figures could be overlooked, given that markets will be busy reacting to the latest policy announcements. The monetary policy outlook will be firmly in focus again on Friday, as speeches from Fed officials John Williams, Esther George and Robert Kaplan are all scheduled.
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)