Home Daily Commentaries Dollar soars as inflation beats forecast

Dollar soars as inflation beats forecast

Wednesday 14 September, 2022

Daily Currency Update

The pound's recent gains versus the dollar were unwound yesterday as US inflation printed higher than forecast, sending GBP/USD from around 1.17 back to the 1.15 level. This morning we have seen a surprise drop in UK inflation with the Consumer Price Index slipping to 9.9% y/y when a hold at 10.1% was expected. It is hoped that the implementation of PM Liz Truss's energy price cap will mean that inflation doesn't spike to the high teens or even >20% as some banks were predicting a few weeks ago and instead may settle in the low double digits before receding as we head into 2023. The drop in inflation was primarily due to falling petrol prices which was enough to offset the rising cost of food prices according to the report issued by the Office for National Statistics which compiles the data. GBP/USD briefly dipped under 1.15 on the news, however is now recouping some of its losses. GBP/EUR is also pushing higher, heading back towards 1.1550.

Key Movers

As mentioned earlier, this week's big event was yesterday's US inflation data, which saw CPI fall to 8.3% from 8.5%. Markets were expecting a fall to 8.1% and as a result the US dollar soared across the board as it all but confirmed that we will see a 75bp hike in interest rates from the US Federal Reserve at next week's policy meeting. The chances of a 100bp hike have actually risen from virtually zero to around 20% as a result, however the ructions this would cause to equity markets mean it's unlikely the Fed will choose this option, especially as we could be starting to see inflation trend lower. Albeit at a slower pace than the Fed and US consumers would like. Stock markets tanked on the news, with the US S&P 500 dropping more than 4%. EUR/USD, which was approaching 1.02, plummeted to a low of 0.9960 as investors sought the safety of the US dollar. As is often the case after these sharp moves, we have seen some profit taking by investors and some dollar gains have been given up this morning, with EUR/USD looking to move back above parity at the time of writing. Looking ahead, today we have Producer Price Index data at lunchtime. This is the wholesale cost of materials that manufacturers pay to produce goods. It's another quiet day from the eurozone with no data, so any news about moves to cap energy prices will be the main area of interest.

Expected Ranges

  • GBP/USD: 1.1480 - 1.1620 ▼
  • GBP/EUR: 1.1480 - 1.1620 ▲
  • GBP/AUD: 1.7030 - 1.7210 ▲
  • EUR/USD: 0.9960 - 1.0130 ▼