US dollar rockets as inflation smashes forecasts

The US dollar roared higher yesterday, following the release of red-hot inflation data.

So far this morning the pound is muted, with GBP/EUR edging up to €1.1688 and GBP/USD wavering around $1.2551. GBP/CAD is slightly firmer at CA$1.7177, while GBP/AUD and GBP/NZD are flat at AU$1.9244 and NZ$2.0974, respectively.

Looking ahead, will indications of a coming interest rate cut from the European Central Bank (ECB) prompt the euro to slide?

What’s been happening?

Wednesday saw the US dollar skyrocket against most major peers in the wake of hotter-than-expected inflation data.

The US headline and core inflation readings exceeded forecasts in March, with the former accelerating to 3.5%, indicating persistent pressure.

This prompted investors to push back their existing bets on interest rate cuts from the Federal Reserve. The central bank may need to keep rates unchanged for longer in order to drive inflation down to its 2% target.

Meanwhile, the euro managed to regain lost ground against its riskier peers in the wake of the US data, as the market mood soured.

This sudden deterioration in market sentiment pulled the increasingly risk-sensitive pound lower in the afternoon, leaving GBP to end the session weaker overall.

What’s coming up?

Turning to today’s session, the euro could endure volatile trade later today in the wake of the ECB’s latest interest rate decision.

While the central bank is widely expected to keep rates unchanged, any indication of a dovish path forward could weaken EUR.

However, if the ECB shocks markets with a surprise rate cut, the single currency could collapse.

Meanwhile, the US dollar could see yesterday’s gains trimmed if the latest PPI data shows a cooldown as forecast.

March’s figure is expected to have decelerated from 0.6% to 0.3% on a monthly basis, which may indicate slowing inflation further down the line.

Elsewhere, the pound could once again trade in a muted capacity, due to a short supply of impactful data releases, although a speech from Bank of England (BoE) policymaker Megan Greene could lend Sterling some support this evening.