USD/EUR, USD/GBP Exchange Rates Rally as US CPI Edges Higher, Fed Rate Bets Supported
USD Rallies after US Inflation Data
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The North American currency climbed across the board following the publication of the US Consumer Price Index.
The measure of inflation had been expected to decline in September, adding to the case in favour of the Federal Reserve leaving interest rates at record lows, but consumer prices unexpectedly edged higher.
Although the increase was only incremental it was enough to give the US Dollar a boost.
According to figures compiled by the Labour Department, the Consumer Price Index rose by 0.1% on the month following the 0.2% decline recorded in August. Stagnation had been expected.
On the year consumer prices were 1.7% higher, unchanged from August and higher than the 1.6% forecast.
The pace of US inflation has slowed lately as the nation’s economy adjusts to the slowing pace of growth in China and the Eurozone, a stronger domestic currency and the threat of another global economic slowdown.
The report saw economist Millan Mulraine note; ‘This persistently weak inflation backdrop should continue to provide the key justification for the Fed to keep its policy stance accommodative.’
The US Dollar to Pound exchange rate moved to a high of 0.6246.
The US Dollar to Euro exchange rate rallied to 0.7929.
The ‘Greenback’ also gained on the Yen and forex strategist Matt Derr observed; ‘It’s nice we didn’t have another flat number – the concern last week was on the threat of global slowdown. We’re still waiting for the right moment to buy Dollar again. The decline could run a little bit further.’
The US Dollar’s strength against the Pound was aided by the fact that the Bank of England’s latest policy meeting minutes were less-than-hawkish. The minutes outlined a 7:2 split among the Monetary Policy Committee in favour of leaving rates on hold.
The also made reference to headwinds facing the UK economy, including stagnation in the Eurozone, slowing inflation and disappointing wage growth.
According to Laura Parsons of Future Currency Forecast; ‘In the short term the Pound will remain reactive to UK economic reports. Below forecast ecostats are likely to undermine demand for the British currency, while signs that the recovery still has legs would push Sterling higher.’
Domestic concerns also weighed on the Euro and helped the ‘Greenback’ strengthen against its European rival.
Mixed reports concerning the prospect of the European Central Bank embarking on additional stimulus measures to support the Eurozone left the Euro trending lower against the majority of its currency counterparts.
The US Dollar was also supported by the news that MBA Mortgage Applications jumped by 11.6% in the week ending October 17th.
US Dollar Could Advance after Employment Figures
With US Initial Jobless/Continuing Claims figures, Markit Manufacturing PMI, the nation’s House Price Index and the gauge of Leading Indicators all due for publication on Thursday, additional US Dollar movement can be expected as the week continues.
Strong employment or manufacturing figures would be supportive of a Fed rate increase and could bolster the US Dollar.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trading in the region of 1.6050.