Home Daily Commentaries Higher inflation than expected boosts the US dollar to a five-day high

Higher inflation than expected boosts the US dollar to a five-day high

Tuesday 13 September, 2022

Daily Currency Update

Just when everyone was expecting a moderation in inflation numbers, the opposite happened, which is quickly pushing the US equity markets lower. The USD index (DXY) is moving to the upside by 1.3% and the Nasdaq Composite and S&P 500 index are falling by over 5% and 4% respectively due to disappointing inflation numbers. Therefore, any sign that the Fed could ease off the brakes in rate hikes is gone. US inflation over the last year came in at 8.3% versus an expectation of 8.1%. However, this year, gasoline, food at home, and apparel are increasing 25.6%, 13.5%, and 5.1% respectively. Core inflation came in at 6.3% (6.1% expected), driven by shelter and medical care costs. Therefore, we have a higher US dollar reinforced by ‘sticky’ US inflation. The consequences can be bad for the US economy; the expectations for an over 75 bps increase are very high. According to the “world interest rate probability” from Bloomberg, the predicted increase will be 84 bps compared with yesterday’s prediction of a 72 bps increase, which means an increase of 100 bps is also on the table. This will put a dent in the recent enthusiasm in US stocks.

Key Movers

In the UK, manufacturing production numbers came in below expectations; industrial production also fell below forecast. The Bank of England meeting has been pushed back a week due to the Queen’s passing, so the pound has another week in a wait-and-see.

Expected Ranges

  • EUR/USD: 0.9973 - 1.0183 ▼
  • GBP/USD: 1.1499 - 1.1735 ▼
  • AUD/USD: 0.6729 - 0.6915 ▼
  • USD/CAD: 1.2955 - 1.3171 ▲