Hotter US Inflation Fuels Dollar Rally as Fed Hawks Raise the Stakes
They shall not grow old, as we that are left grow oldAge shall not weary them, nor the years condemn
At the going down of the sun and in the morning
We will remember them.
Laurence Binyon, 1914
Both headline and core US CPI readings came in hotter than expected yesterday which led to a bout of US dollar buying that sent GBPUSD down to 1.3315 and EURUSD to 1.1145 yesterday afternoon, and also pushed US stocks back into the red after Monday’s positive moves.
We’ve had warnings from a couple of Fed officials that they risk falling behind the curve on inflation. Goolsbee called the CPI data ‘disturbing’, while Waller went so far as to suggest a 50bps rise in December could be warranted. Feds Hammack, Schmid, Paulson and Logan have all said more frequent, smaller increases would be better to push rates into more restrictive territory. A Dec rate rise is fully priced in, I guess the only question is whether they go for 25 or 50bps.
On the subject of inflation, NIESR has forecast that UK inflation is likely to hold above the 2% target until at least 2030. It does make me wonder whether a 2% target is appropriate these days. Regardless, another BoE rate rise looks likely but it is possible this will come in February rather than December.
The US dollar recovered a little of its lost ground overnight but as I type it is pushing higher again, helped in no small part by those rather hawkish Fed comments. GBPUSD is 1.3320, EURUSD 1.1145 which has left GBPEUR at 1.1955. In the crosses, GBP is 1.9385, 2.3805 and 1.8940 against AUD, NZD and CAD, the bigger move coming in NZD which has pushed higher since the weekend elections, albeit from very low levels.
In other news, Trump has been allowed to sue the BBC for defamation by a judge in Florida over the editing of a speech he made before the 2021 riots. Trump has said the decision is a huge victory although the BBC seem confident that they can defend the allegations, particularly as there is no evidence of the program in question ever being shown in the US.
It’s getting a bit dark and wintry now, as it should for mid-November. So we’ve started on another box set, this time it’s The Diplomat. Only a few episodes in but so far so good. Typical US political stuff though, with the UK Prime Minister being depicted as something of a weak, bumbling fool but I guess they need to make it realistic. Anyway, it has started well, I’m still gripped, just hoping it doesn’t veer off into the absurd too quickly.
No US data today due to the US Veterans Day holiday so we could well be in for a quiet afternoon. Aussie inflation data overnight is a potential market-mover, as is the UK Q2 GDP release early tomorrow morning.
Have a great day…
- 09.45 ECBs Lagarde speaks
- 00.00 AUS consumer inflation expectations
- 07.00 UK GDP, industrial production