GBP and Euro retreats on US CPI

Daily Currency Update

The Euro started Thursday above 1.06 after seeing gains through the majority of the week, however, the US CPI and inflation data release yesterday had investors turning and heading for the safe haven of the US Dollar which saw the Dollar Index gain momentum and was up 0.80% above 106.50.

US headline inflation rose 0.4% and year-on-year inflation held steady at 3.7% vs the 3.6% forecast. Sticky inflation could mean the Fed seeing rate cuts pushed further back with the US Dollar gaining strength against the Pound and Euro. Federal Reserve Bank of Boston President Susan Collins had said on Thursday that the central bank is at, or near, the peak of the interest rate hiking cycles. However, Collins didn’t rule out more rate hikes and gave insight that the latest inflation data shows uneven progress toward restoring price stability and confirmed her view that the central bank may have to raise rates again to bring inflation back to target.

The pound fell against the US Dollar by 1.2% from Thursday's highs, dropping to 1.2180 with the release of US CPI, indicating that the Fed could get pushed further into a higher for longer rate hiking cycle.

The UK’s industrial sector activity showed a further deterioration in August. Manufacturing output dropped 0.8% Month on month in August versus -0.4% expected and -1.2% seen in July while total industrial output held steady at -0.7% Month on Month vs. -0.2% expected and -1.1% previous.

The annual UK Manufacturing Production data rose 2.8% in August and missed expectations of 3.4%. Total Industrial Output increased by 1.3% in the eighth month of the year below the 1.7% expected growth however improved slightly from the previous reading of 1.0%.