US dollar firms following inflation data

Philip McHugh March 1st 2024 - 2 minute read

The US dollar strengthened on Thursday, following the publication of the latest US core PCE price index.

Meanwhile, the pound is grading sideways this morning, with GBP/EUR stable at €1.1683, and GBP/USD flat at $1.2630. GBP/CAD is rangebound at CA$1.7142, while GBP/AUD and GBP/NZD hold steady at AU$1.9410 and NZ$2.0737, respectively.

Coming up, will a drop in Eurozone inflation drag the euro lower this morning?

What’s been happening?

The US dollar rallied yesterday, following the publication of the latest core PCE price index.

While the Federal Reserve’s preferred indicator for inflation ticked slightly lower last month, it remained stubbornly above the bank’s target, which helped to ease expectations for an interest rate cut from the Fed and lift USD.

However, tempering USD demand was a larger-than-expected rise in initial jobless claims last week.

Meanwhile, the euro ticked lower in response to some lacklustre economic releases from Germany.

Germany’s latest consumer price index and retail sales data both printed below expectations, with the latter stoking recession fears.

At the same time, the pound was left to trade without direction yesterday, amid a lull in UK economic data.

What’s coming up?

Looking ahead, the publication of the Eurozone’s CPI figures will be in the spotlight today.

February’s preliminary figures are expected to report that inflation in the bloc slowed from 2.8% to 2.5%. But following Germany’s CPI figures there’s a risk that the Eurozone release could also undershot expectations.

This could place significant pressure on the euro this morning as this might increase pressure on the European Central Bank (ECB) to start cutting interest rates.

For USD investors the focus will be on the latest ISM manufacturing PMI. If the index shows that the US factory sector is close to returning to growth it might strengthen the US dollar.

Finally, GBP investors will look to a speech by Bank of England (BoE) Chief Economist Huw Pill for fresh impetus today. Could some hawkish remarks provide a boost for the pound at the end of the week?

Written by
Philip McHugh

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