The U.S dollar traded sharply higher yesterday against all of the major currencies on the back of red hot consumer price growth. CPI rose 0.9% in the month of June, up from 0.6% in May and against a 0.5% forecast. On an annualized basis, consumer price inflation jumped 5.4%, the largest increase in 12 years. Core prices rose 4.5%, the fastest rate since 1991. While everyone expected price pressures to increase, yesterday’s report illustrates how significant the problem has become. Not only are prices rising sharply but the increases are more widespread which means prices can remain high for longer. This is particularly likely given that a large part of the problem is supply chain issues that are not easy fixes. While yesterday’s CPI report casts doubt on the Federal Reserve’s view that high inflation is transitory, the inconsistent performance of stocks and bonds is a sign that investors are still undecided. Fed fund futures are pricing in 90% chance of a rate hike in December 2022 but 10 year Treasury bond yields ended the day lower and not higher. Stocks fell, but the decline was modest. Investors are clearly waiting for guidance from Fed Chairman Powell who delivers his semiannual testimony on monetary policy and the economy tomorrow. The U.S dollar will give back gains if he downplays CPI but if he suggests that taper is right around the corner, the dollar could extend higher quickly. Policy adjustments will be the main focus today. The Reserve Bank of New Zealand and Bank of Canada meet before Powell’s testimony. Both currencies sold off on U.S dollar gains despite the prospect of less dovishness. The RBNZ and the BoC are two of the most hawkish central banks. No changes are expected from the RBNZ this month but they are widely expected to be the first major central bank to raise interest rates. A number of local banks are calling for a rate hike in November which means they could signal this intention as early as this month. There’s about an 80% chance the Bank of Canada will reduce asset purchases today. They kicked off the global taper cycle back in April and is widely expected to continue normalizing monetary policy with inflation above target and growth accelerating. Nearly 68% of Canada’s population has received at least one COVID-19 vaccination dosage, allowing the country to ease restrictions. This has been accompanied by stronger job growth and manufacturing activity.
Euro
The single currency fell against the U.S Dollar after heated U.S inflation spurred bets of faster monetary policy tightening than Federal Reserve officials have so far signaled. Traders are now looking ahead to Fed Chair Jerome Powell testifying before Congress on Wednesday and Thursday for any signals on the timing of a tapering of stimulus. Overall, the EUR/USD traded with a low of 1.1823 and a high of 1.1880 before closing the day around 1.1877 in the New York session.
Yen
The Japanese Yen traded lower against the U.S Dollar as U.S consumer prices rose by the most in 13 years in June amid supply constraints and a continued rebound in the costs of travel-related services from pandemic-depressed levels as the economic recovery gathered momentum. Another hotter-than-expected U.S CPI print has got the market wondering. Overall, the USD/JPY traded with a low of 109.71 and a high of 110.24 before closing the day around 110.10 in the U.S session.
British Pound
The British Pound fell against the dollar yesterday after data showing the highest U.S inflation in 13 years sent the greenback surging to a six-day high. The pound eased earlier in the day from the two-week highs when the BoE scrapped pandemic-era curbs on British banks’ dividend payments but warned in its FSR that some asset prices looked stretched. Overall, the GBP/USD traded with a low of 1.3754 and a high of 1.3898 before closing the day at 1.3897 in the New York session.
Canadian Dollar
The Canadian Dollar continued to hold its biggest decline in a week to trade at C$1.25155 per greenback, weakening toward a 2-1/2-month low reached last week. The Canadian central bank is due to update its economic forecasts at a policy announcement later in today’s session, with further tapering of asset purchases expected. Overall, USD/CAD traded with a low of 1.2440 and a high of 1.2554 before closing the day at 1.2441 in the New York session.
Australian Dollar
The Australian Dollar firmed slightly earlier in the session yesterday ahead of U.S inflation data, but pandemic lock-downs kept the pressure on the Aussie dollar. The worsening Covid-19 outbreaks in Sydney are keeping the Australian dollar under pressure. Despite the recent pick-up in pace, Australia’s vaccination rate remains low. Overall, AUD/USD traded with a low of 0.7460 and a high of 0.7532 before closing the day at 0.7482 in the New York session.
Euro-Yen
EUR/JPY is trading below 14, 50, and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 30 and lies below the neutral zone. In general, the pair has gained 0.63%.
Sterling-Yen
Currently, GBP/JPY is trading below 14 and above 50, 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 33 reading and lies below the neutral zone. On the whole, the pair has gained 1.15%.
Aussie-Yen
Currently, the cross is trading below 14, 50, and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 28 reading and lies below the neutral region. In general, the pair has gained 1.15%.
Euro-Sterling
This cross is currently trading below 14, 50, and 100 days moving average. Fast stochastic is indicating a bearish tone and MACD is issuing a bullish signal. The Relative Strength Index is above 48 and lies below the neutral region. Overall, the pair has lost 0.54%.
Sterling-Swiss
This cross is trading above 14 and below 50, 100 days moving average. Fast stochastic is issuing a bullish stance and MACD is also indicating a bullish tone. The Relative Strength Index is above 42 and lies below the neutral region. In general, the pair has gained 0.67%.
This information has been prepared for information only and does not constitute an offer or commitment. This information does not constitute investment advice as defined by the rules of the FCA.
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