Hot US inflation number fails to boost the dollar

Lawrence Kaplin
Lawrence Kaplin 13 January 2022

GBP: Rises on improving market sentiment

EUR: 2-month high versus dollar

USD: Slides post CPI report

 

Sterling

Sterling made further gains against a weakened dollar yesterday following the release of US inflation data that was not as high as some market participants had feared. In contrast, the pound did struggle against a basket of G10 currencies, easing back from a post-pandemic high versus the euro and recorded losses of over 0.5% versus the FX commodity complex.Ahead of today’s next round of UK/EU post-Brexit trade negotiations, reports are coming in of delays at the borders of up to 4 days as from January 1st businesses are now faced with having to conform to a mountain of new Brexit import/export red tape.

With the new UK trade negotiator Liz Truss having already pre-warned her EU counterpart that unless the talks progress quickly and significantly the UK will invoke Article 16 of the Brexit trade agreement, it is highly likely the talks will continue in the same vein as with her predecessor before her and get nowhere.

In other news, “party gate” continues to haunt UK PM Johnson, but so far markets have largely ignored the debacle, and would probably welcome his departure in favour of Chancellor Rishi Sunak or Secretary of State Liz Truss.No economic data is scheduled for release.

 

Euro

Assisted by a weaker US dollar the euro finally broke out of its recent tight trading range yesterday, posting a fresh 2-month high. Data released yesterday showed Eurozone industrial production handily beating market forecasts, but large downward revisions to the previous month’s report largely took the shine off and left the euro unchanged against a broader basket of currencies.

No economic data is scheduled for release. ECB Vice-Chair De Guindos is due to speak at 10:30.

 

US dollar

The dollar suffered steep losses yesterday following the release of the latest US inflation data. Despite registering the highest reading since 1982, with the number coming in at an eye-watering annual rate of 7%, the dollar immediately weakened as the number was not as high as many market participants had feared. The move lower was swift and brutal with many traders caught long US dollars in the hope of a number north of 7.5%. With concern now growing over a cost-of-living crisis, the White House sought to soothe inflation fears and were quick to respond stating rather glibly they “expect inflation to moderate”.

In other news, Fed Vice Chair-elect Brainard is due to testify at her nomination hearing later today at 3pm. 1:30pm Producer Price Inflation data and weekly jobless claims.

 

Market rates

Today's Interbank Rates at 08:03 against sterling movement vs yesterday.

Euro €1.197 ↓
US dollar $1.373 ↑
Australian dollar $1.881 ↓
South African rand R21.02 ↓
Japanese yen ¥157.1 ↓

 

Have a great day.