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The US CPI weakens the USD

Wednesday 14 December, 2022

Daily Currency Update

Yesterday morning we saw the early release of the UK claimant count, which increased by 30,500 in November, and additional jobs data saw the October unemployment rate rose to 3.7% m/m. These data releases indicate that the labor market began to feel the repercussions of the slowdown in consumer spending. Later in the day, Bank of England governor Bailey held a press conference on the financial stability report with only a few sound bites worth noting however reiterated that the economic environment is challenging; UK inflation is high, demand slowing, and interest rates have been rising. GBP/USD bolted to 1.2440 yesterday afternoon after the US consumer prices report showed cooling inflation trends, whereas GBP/EUR remains within its recent range but dropped from highs of 1.1670 to 1.1610 at the lows. This morning UK consumer prices rose by 0.40% on the month in November, resulting in an annual rise of 10.7%, a small drop from 11.1% the prior month. The data adds pressure on the Bank of England to tighten monetary policy further, ahead of their latest decision on Thursday. A 50-basis point hike is expected. GBP/USD opens today at 1.2382 and GBP/EUR is at 1.1633. The key release today for any currency volatility will come from the US as the Fed concludes its two-day policy-setting meeting.

Key Movers

The USD weakened across the board yesterday. Inflation came in below expectation, with headline CPI inflation dipping to 7.1% year-on-year and 0.1% month-on-month. Core CPI inflation also dipped to 6% year-on-year and 0.2% month-on-month. Combined with better-than-expected inflation data in October and the trend since the summer supports that the Fed is starting to win its fight against inflation. This sets the scene for a step down in the pace of hikes with the Fed expected to raise rates by 50-basis point later today after four consecutive 75-basis point increases. GBP/USD bolted to 1.2440 on the news yesterday and EUR/USD also jumped to 1.0660. A similar jump was also seen across several other currencies, including the Aussie and Kiwi dollars. Today, we await the conclusion to the Fed’s two-day policy-setting meeting where a 50-basis point hike has now been factored into the market however any deviance from this may result in bigger volatility in the USD.

Expected Ranges

  • GBP/USD: 1.2290 - 1.2450 ▲
  • GBP/EUR: 1.1570 - 1.1670 ▼
  • GBP/AUD: 1.7970 - 1.8180 ▼
  • EUR/USD: 1.0610 - 1.0740 ▲