Surprisingly strong inflation propels US Dollar to strongest position in over a week

Claire Hogarth23/Oct/2014Currency Updates

GBP

The Pound fell to its lowest position against the Dollar this week after the release of the Bank of England minutes from this month’s MPC meeting. Sterling’s gains over the past week have been almost completely wiped out over the past two days, with the UK currency suffering from one of its worst days against greenback in October, with cable falling 0.25%.

As expected two of the nine MPC members, Ian McCafferty and Martin Weale, voted for a rate hike for the third consecutive month despite September’s weak UK inflation data that fell to a five year low of 1.2%. Sterling looks set to remain under pressure from the Dollar as expectations have firmly been pushed back well into 2015 for the next rate hike, with the central bank becoming increasingly dovish since the last meeting. The minutes themselves, while not going quite as far as chief economists Andrew Haldane’s “gloomier” outlook, highlighted the downside risks on activity, and the downside news on inflation, showing that the UK policy makers are generally concerned with the overall health of the economy. UK government bonds fell for a second day as a result.

The main focus point in the UK economy today will be the release of Retail Sales & Retail Sales ex-Fuel data for September which will take place at 9:30am.

EUR

The single currency fell for another day on sterling despite the release of the Bank of England minutes causing a brief spike in EUR/GBP. The threat of quantative easing within the Eurozone continued to loom over the ECB on Wednesday causing the Euro to trend lower against the majority of its major rivals, despite a lack of data releases or announcements. The currency ended the day 0.3% down on the Pound and 0.5% down on the Dollar.

A number of announcements this morning from London based business survey company, Markit Economics, which releases October’s Manufacturing and Services PMI’s for Germany and the Eurozone. More bad news for the Euro is expected, with economists suggesting all figures will fall on last month, further highlighting the current weakness and lack of growth within the area. Should this be the case, it is unlikely that the common currency will be able to curb a continuing downtrend with pressure on the ECB to employ additional stimulus inevitably set to heighten.

USD

Another good day trading for the Dollar with the US Dollar Index increasing for a second consecutive day, this time by 0.4% on its major peers. A combination of the Bank of England minutes and strong inflation data in the US contributed to greenback strengthening 0.25% on the Pound and by 0.5% on the Euro during London trading on Wednesday.

More positive data came out of the US yesterday as the YoY Consumer Price Index showed inflation of 1.7% in September, matching the level reached last month. The index, which measures price movements using retail prices of a representative basket of goods and services, came in 0.1% up on expectations and gave the US Dollar Index an instant boost in afternoon trading. The Consumer Price Index excluding Food & Energy, also registered a strong positive reading of 1.7% with the decrease in energy prices negated by a 3% increase in the price of food during the same period. In addition, the MoM CPI showed an unexpected increase, climbing 0.1% in August after economists had predicted no change.

More unemployment data out in the US today with Initial and Continuing jobless claims at 1:30pm followed by the Housing Price Index for August at 2pm.

Rest of the world

Canada’s Dollar reached its strongest position in over a week, rising by 0.15% on the US Dollar after the country’s monetary policy released its report from its Monetary Policy meeting. The Bank of Canada maintained the benchmark interest rate of 1%, however, the report was far less dovish than anticipated, with the word “neutral” a notable omission, fuelling speculation that the central bank may be more open to raising interest rates than was previously anticipated.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.