The U.S. Dollar is up across the board, with Pound Sterling the one exception, following the release of U.S. Consumer Price Index figures.
Overview
The up-and-down-swing nature of FX flows continues as the globe reacts in frustration to September CPI increasing by more than expected at 0.4% vs. 0.2% and hiking the yearly average to 8.2%. Prices are now at a 40-year high despite a serious commitment to hiking interest rates in an attempt to cool down the economy and price growth. None of that seems to be happening, but theory demands that the Fed ready themselves for maybe two more rounds of 75-basis-points hikes, which will only add to natural buck strengthening.Indeed, today’s CPI report represents a headache for traders as well as for all involved in the Fed line of contractionary thinking. What more and how much of a chokehold should be had in borrowing? Sectors of the economy give on signal then prices give another. In the mixed elements we are navigating in, the buck simply benefits from the lack of clarity and the uncertainty accompanying all these developments. As for the U.K, the Sterling is, for now, escaping the dollar rally because the government wants to put together a new tax plan that is more satisfying to markets.
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇓
The Euro seems to be catching no breaks now as the energy crisis unfolding remains a thorn in the economy’s side while the politics of the EU also create a sense of instability. With tremendous debt and trade surpluses depleted, big nations, especially Germany, are looking to borrow from the market to invest, spend, and cushion their economies nationally from downfall. It has added an element of stress to the integrated nature of the trade agreement since not all countries can afford to borrow like that.
Meanwhile, the unity needed to resolve problems may not be there to make big moves per country. Italy, now under the new administration, is struggling with political gridlock once again, and the new Prime Minister has found it quite difficult to establish a governing coalition.
GBP ⇑
The sterling is the only currency not down against the greenback currently, with news of a U.K. turnaround hitting the wire. Although there has been nothing more than confusion about the bonds markets and what exactly the Bank of England was hoping to accomplish, it looks like officials are ready to work on what caused the problem to begin with: a dissatisfactory tax plan accompanied by big spending without making up for the loss of revenue. If the holes are filled, and the budget makes sense, Prime Minister and government can rejoice, and it is clear the FX market is ready to reward the Pound. If the pound can hold its gains today, it will snap a five-day losing streak.
