US inflation crucial for dollar gains

Jeremy Thomson-Cook
Jeremy Thomson-Cook 13 October 2021

  • GBP: Growth concerns rise
  • EUR: Watch 1.15 in EURUSD
  • USD: US CPI at 13.30

Sterling

Revised growth numbers and heightened Brexit concerns are not a comforting tonic for sterling but those looking for the pound to go higher will have to drink it all down in the coming days.

The most recent revision to the UK’s growth picture saw the services sector weaken and drag the overall average lower, heightening concerns that even before fuel crises and gas price rises that the services sector was starting to wobble.

Ahead of the Chancellor’s budget in a fortnight’s time, the trade off between growth and jobs, which were shown yesterday to be buoyant, will be all the more important.

Brexit chatter will focus in on the Northern Ireland protocol following Lord Frost’s speech yesterday arguing for a complete overhaul of the agreement. This remains the same agreement that he negotiated fewer than 24 months ago.

He may have forgotten that, but few else have.

 

Euro

The euro has remained quiet over the past 24hrs, unable to break higher or lower on speeches from European Central Bank members. A strong inflation reading in the US will be enough to break EURUSD back towards 1.15 and the key for the already weak euro is just how much further it will go.

 

US dollar

Growth downgrades by the IMF for the global economy and a warning that the Federal Reserve may need to raise interest rates to control inflation were enough to boost the USD yesterday. Frankly, if this is news to you then you really haven’t been paying attention for the past 6 months but will need to as we head into the New Year.

The most important macroeconomic data point of the week is due today at 13.30 in the form of US inflation within which investors will be looking for signs that a change in rates needs to happen sooner rather than later.

Confirmation of that may be enough to push GBPUSD below the near-term base that it has set up around the 1.3570 level and get EURUSD watchers once again talking about 1.15.

 

Elsewhere

While we have our eyes on the euro for losses post the US inflation number at 13.30, the real pain will likely be felt by the Japanese yen which continues to get beaten up by the USD as yields rise. Anything to further the argument that the Federal Reserve needs to raise rates sooner than expected and the yen will be in for a pummelling.

 

Market rates

Today's Interbank Rates at 08:49am against sterling movement vs yesterday.

Euro 1.176 ↓
US dollar 1.359 ↓
Australian dollar 1.847 ↓
South African rand 20.41 ↑
Japanese yen 153.9 ↑

 

Have a great day.