US dollar surges on signs of sticky inflation

Philip McHugh December 1st 2023 - 2 minute read

The US dollar surged on Thursday as the latest US inflation figures tempered Federal Reserve interest rate cut speculation.

Today, the pound is facing mixed movement. GBP/EUR is up at €1.1613 and GBP/USD has risen to $1.2652. GBP/CAD is wavering at CA$1.7110, while GBP/AUD and GBP/NZD are also wobbling at AU$1.9106 and NZ$2.0501, respectively.

Coming up, a speech by Fed Chair Jerome Powell will be centre stage today. Will he also seek to quash recent Fed rate cut speculation?

What’s been happening?

The US dollar rallied sharply during yesterday’s session, following the publication of the latest core PCE price index.

The Federal Reserve’s preferred measure of inflation printed at 3.5% in October. The index was seen as a sign that US inflation is a little stickier than previously thought.

Alongside a smaller-than-expected increase in initial jobless claims last week, this prompted USD investors to rein in their Fed rate cut bets.

The euro, meanwhile, stumbled on Thursday following the publication of the Eurozone’s own inflation figures. November’s softer-than-expected inflation figures dragged on the single currency as they stoked expectations that the European Central Bank (ECB) could start cutting interest rates in the first half of 2024.

At the same time, the pound was placed on the defensive yesterday as a downbeat market mood weighed on the increasingly risk-sensitive currency.

What’s coming up?

In the spotlight today will be a speech from Fed Chair Jerome Powell later this afternoon.

If Powell takes steps to push back against recent Fed rate cut speculation, the US dollar is likely to surge.

However, any upside in the US dollar may be capped if the latest ISM manufacturing PMI reports the US factory sector remained in contraction last month.

In the meantime, a speech by ECB President Christine Lagarde will be in focus for EUR investors. Will Lagarde also try to temper rate cut expectations?

Finally, barring a revision to the UK’s latest manufacturing PMI, movement in the pound today is likely to remain tied to market risk sentiment. This could potentially lead to further losses for Sterling if a bearish mood prevails.

Written by
Philip McHugh

Select a topic: