Forex: US dollar takes the lead after the jump in inflation

COT Currency Speculator Sentiment rising for Euro & British Pound Sterling

Forex: US dollar takes the lead after the jump in inflation

The US dollar rallied against all other currencies on Thursday, after US Consumer Price Index (CPI) rose more than expected in October, reviving speculations about faster interest rate hikes next year. 

The US Dollar index (DXY) hovers around new 52-week highs at 95.00 level, gaining 0.8% since the CPI release. US Treasury yields also rose after the inflation surprise, with a 7 basis points (bps) increase in the 2-year yield and 9 bps on the 10-year benchmark.  

EUR/USD and GBP/USD both slipped by nearly 0.7% from yesterday’s midday London trading, while they edged down around 0.1% from previous close.  

The Swiss franc (CHF) and the Japanese yen (JPY) have lost 0.7% of their value against the greenback since the CPI was out, while the Aussie (AUD) and the Kiwi (NZD) weakened 1.2% and 1.9% respectively. 

Elsewhere, emerging market currencies sold-off after the inflation print, with the South African rand (ZAR) and the Mexican peso (MXN) both down 1.4% against the dollar, while the Turkish lira (TRY)  hit new all-time lows by weakening 1% versus the greenback. 

US dollar

As of writing, the US Dollar index (DXY) was last at 94.98 level, up 0.21% on the day.

In October, US inflation was substantially higher than market forecasts and not only confined to COVID-related items but broad based across the main items in the index, as the cost of services is also rising.

Core CPI inflation, which excludes food and energy prices, increased by 0.6% points to 4.6% on the year, well above consensus (4.3%). Core inflation in the US reached the highest level since 1991.

Headline inflation rose by 0.8% points to 6.2% on the year, hitting the highest level since 1990 and again above expectations of a 5.8% year-on-year rise.

Markets are now pricing in a 71% probability, up from 56.5% yesterday, Fed starts hiking interest rate in June next year.

DXY technical levels:

  • 52-week high: 95.03
  • 52-week low: 89.212
  • 50-day moving average: 93.59
  • 200-day moving average: 92.08
  • 14-day Relative Strength Index (RSI): 64.83

Euro

As of writing, the euro is down 0.15% from previous close versus the US dollar (EUR/USD) and flat against the British pound (EUR/GBP).

Yesterday, ECB Governing Council member Robert Holzmann said that asset purchases (QE) could end next in September or December next year, depending on the inflation dynamics.

Today, ECB Chief Economist Philip Lane will speak at the 2nd joint ECB-FED New York conference, while ECB executive board member Isabel Schnabel will take part at a Q&A organized by Ludwig-Maximilians-Universität.

EUR/USD technical levels:

  • 52-week high: 1.2349
  • 52-week low: 1.1455
  • 50-day moving average: 1.1662
  • 200-day moving average: 1.1882
  • 14-day Relative Strength Index (RSI): 35.72

British pound

GBP/USD is down 0.15% to 1.3532 as of writing.

On the data front, UK gross domestic product (GDP) preliminary figure came in at 6.6% year-on-year in Q3 (1.3% quarter-over-quarter), disappointing market expectations by 0.2%.

Manufacturing production increased 2.8% year-on-year in September, missing market forecast of 3.1%, while business investment was up 0.8% quarter-over-market in Q3, disappointing market expectations of a 2.6% increase.

GBP/USD technical levels.

  • 52-week high: 1.4248
  • 52-week low: 1.3091
  • 50-day moving average: 1.3684
  • 200-day moving average: 1.3845
  • 14-day Relative Strength Index (RSI): 33.39
COT Currency Speculator Sentiment rising for Euro & British Pound Sterling

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