Disappointing inflation data weakens USD

The US consumer price index showed zero growth in July and that bought the annualised inflation rate down to 8.5%; slightly below the market expectation of 8.7%. You could be forgiven for thinking that would ease the pressure on US Federal Reserve and that they could start talking about reducing the number of interest rate rises they’re planning. You’d be wrong though. there have been several comments from Federal Reserve speakers in the last 24 hours which suggest the continuity of the Feds 75 basis point rate hikes. Minneapolis Federal Reserve Bank President, Neel Kashkari thinks the Fed will raise the base rate another 1.5% this year and more next year even if it causes a recession. Good to know. For now, the US dollar is weaker. The GBPUSD rate is at $1.2220 this morning, having spiked to $1.2275 when the inflation data was released. The EURUSD rate is above €1.03 and, having been up to JPY 140 in July, the USDJPY rate is down to JPY 133. This afternoon’s US weekly employment data will be watched extremely closely, especially after the stellar monthly employment report we saw last Friday. So, expect USD volatility around 13:30 GMT.

Dry spell damaging EU logistics

The Rhine is an important conduit for goods transportation throughout Germany and the adjoining countries but the recent dry spell has caused water levels to drop and that places restrictions on the loading capacity for ships travelling along the river, plus there are additional surcharges levied during low water level periods. The situation was similar in 2018. The alternative routes of rail and road haulage also have capacity problems and increased costs due to fuel rises. This is impacting European trade but the reopening of oil pipelines from Russia into the EU has overshadowed that for now. 

The Euro is up against the weaker USD at $1.0305 this morning, having spiked above $1.0360 in the immediate aftermath of the inflation announcement. However, the Euro has given up some of the gains it made against the Pound last week. GBPEUR starts the day at €1.1860. We lack any heavyweight EU data today, so the Euro will take its cues from overseas activity.

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