US Dollar Soars after American Inflation Exceeds Forecasts

US Dollar (USD) Jumps following Hot Inflation Reading

The US Dollar (USD) surged higher yesterday following America’s hotter-than-expected CPI print. Both headline and core inflation printed above forecasts, with the latter rising from 5.9% to 6.3%.

The latest data cemented expectations for another 75-bp interest rate rise from the Federal Reserve, as it suggests that inflation is becoming more broad-based. Markets now also expect the Fed to hike rates further overall.

Looking ahead, the latest US PPI could influence the ‘Greenback’. Consensus estimates see a 0.1% decline month on month, but could the PPI exceed forecasts as the CPI did?

Pound (GBP) Undermined by Further Strikes

The Pound (GBP) initially firmed yesterday as the UK’s latest mixed labour market report supported expectations of a 75-bp rate rise at the Bank of England’s (BoE) next meeting.

However, Sterling turned south as the session progressed. Workers at Felixstowe container port announced more industrial action, stoking fears about the impact of strikes on the UK economy.

Today, UK inflation came in mixed. Headline inflation unexpectedly eased, due to the fall in fuel prices. However, core inflation edged up by 0.1 percentage points to 6.3%, as expected. This may provide Sterling with a modest lift as more BoE rate rises look likely.

Euro (EUR) Buoyed by Ukraine’s Military Successes

The Euro (EUR) ticked higher against its weaker peers yesterday as ongoing optimism in Ukraine lifted hopes that the war – and Europe’s energy crisis – may be over sooner than anticipated.

The single currency did find its gains capped, however. Economic sentiment in Germany dropped to a fresh 14-year low, printing worse than expected, while strength in the US Dollar hurt EUR due to the currencies’ negative correlation.

Later this morning, an expected decline in Eurozone industrial production could hurt the Euro.

Canadian Dollar (CAD) Boosted by Rate Rise Bets

The Canadian Dollar (CAD) leapt alongside the US Dollar yesterday, as expectations of a more hawkish Fed helped to boost Bank of Canada (BoC) rate hike bets.

With no market-moving Canadian data out today, the oil-linked ‘Loonie’ may trade in relation to crude prices.

Australian Dollar (AUD) Slides as US CPI Sparks Risk Aversion

The risk-sensitive Australian Dollar (AUD) fell overnight as markets reacted to the hot inflation rate reading from the US. Worries of more hawkish action from the Fed rattled markets.

New Zealand Dollar (NZD) Falls amid Souring Sentiment

Likewise, the New Zealand Dollar (NZD) declined in overnight trade as the bearish market mood dented the ‘Kiwi’.

Samuel Birnie

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