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Strong US inflation figures drive the dollar higher

Friday 11 February, 2022

Daily Currency Update

After a fairly quiet week, it’s a particularly busy day on the economic calendar for the pound. Preliminary GDP was released this morning, printing a figure of 1% over an expected 1.1%. Trade data for January is also due out but should have a limited impact on the pound. After gaining ground on the euro for most of yesterday, GBPEUR started the European session back above the €1.19 handle. GBPUSD also started the day higher, breaking above $1.3550.

Key Movers

The US dollar rose yesterday after the U.S. consumer price reading came in higher than expected, pushing the dollar up against most major currencies as the data suggested that the Federal Reserve could be more aggressive in fighting rising inflation. CPI rose 0.6% last month from December, while in the 12 months through January, CPI jumped 7.5%, the biggest year-on-year increase since February 1982. There was plenty of volatility seen in the markets overnight, but as the dust settled, risk-off sentiment dominated. Fed funds futures are now pricing in a 94.7% chance of a 50bps rate hike by the Fed in March after the strong CPI reading. This is compared to just 33.7% a week ago. Christine Lagarde had an interview yesterday with Redaktionsnetzwerk Deutschland, where she continued her stance that ‘raising rates would not solve any the of current problems’. She also commented that she’s confident that inflation will fall back in the course of the year. Overnight we’ve seen the EUR trade lower against the USD and the pound.

Expected Ranges

  • GBP/USD: 1.3510 - 1.3605 ▲
  • GBP/EUR: 1.1870 - 1.1960 ▲
  • GBP/AUD: 1.8935 - 1.9040 ▲
  • EUR/USD: 1.1350 - 1.1440 ▲