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  • richard evans

USD sharply higher after US inflation data

Good morning

Well once again any signs of USD weakness didn’t last long after US inflation numbers came out stronger than expected, wiping out the idea that the Fed might ease up on rate rises. 75bps next week looks like a certainty, but some banks are now forecasting a full 100bps rise and I think we will see more talk of that in the coming days, together with higher overall targets on rates from around 3.5-3.75% to probably something nearer 5% US equities fell hard, S&P and Dow Jones down around 4%, Nasdaq down over 5%.

In currencies, USD gained across the board. GBPUSD collapsed from 1.1730 to reach 1.1485, EURUSD from 1.0175 all the way back to well below parity, hitting 0.9955 overnight. USDJPY traded up from just below 142.00 to almost 145 and gold slumped from around $1730 to dip below $1700.

The move looks severe but in reality we are really back to where we were just a few days ago, before all this talk of slower inflation in the US. It does give us an idea of the sort of moves we could see as and when the Fed do slow, but for now those days do seems a long way off.

UK CPI came out a little on the softer side early this morning, helped a little by lower energy prices and with the government cap on price rises coming soon pressure on inflation from fuel may drop further. The flip side is that money saved on fuel bills could be spent elsewhere which will go some way to negate the benefits. Weaker number or not, it is still at almost 40-year highs. I’d have thought the lower GBP would impact inflation to the upside but for now this doesn’t seem to be the case, perhaps Octobers reading will reflect this.

In other news, quite alarming to see a flare up of hostilities between Azerbaijan and Armenia. I have to be honest, I really don’t know whether there are ‘good guys’ and ‘bad guys’ in this, my immediate feeling is Azerbaijan are in the wrong as they seem to be the aggressor. They claim Armenia are preparing for a large-scale military provocation. Whether that is right or wrong, I really don’t know. Russia claimed Ukraine were doing the provoking and used that as a reason to invade.

I know Armenia and Azerbaijan have had ongoing disputes for a long time. It’s a complicated part of the world and a complicated border and I have a horrible feeling that the entire region could become even more volatile. Putin is said to be mediating. That’s not a great confidence booster! Russia do, however, seem to have ties with both countries so perhaps in this instance their idea of peace-keeping might actually mean something peaceful.

Speaking of Putin, I note he is meeting with leaders from China, India, Turkey and Iran. The world is becoming even more ‘them and us’. This will be the first meeting between Putin and Xi since Russia’s invasion of Ukraine. Instead of looking for peace, look for China weapons in Ukraine soon, if they are not already. I also wonder whether Putin would encourage China to take action against Taiwan, in a ‘if not now, when?’ kind of way. Putin did speak with German Chancellor Sholz who urged him to find a diplomatic solution and withdraw troops, but i have no doubt that request fell on deaf ears.

- 10.00 EU industrial production

- 12.00 ECBs Lane speaks

- 13.30 US PPI

- 23.45 NZ GDP

- 00.50 Japan trade balance

- 02.00 AUS consumer inflation expectations

- 02.30 AUS employment

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