USD boosted by inflation at 13 year high

The US Dollar got a boost after it was reported that the US consumer-price index rose 5.4% on the year to June. That was the largest annualised jump since August 2008. GBPUSD dropped to $1.38 and the EURUSD rate fell to $1.1775 on the news. However, the greenback gave up some of those gains on profit-taking. And we are back to USD 1.3850 against the Pound this morning and just under $1.18 against the Euro. The USD will be booted around this afternoon when producer price indices are published, the Federal Reserve Chairman speaks and the Fed’s Beige Book is published. Each event could be market moving.

Part of the Pound’s recovery is down to the confirmation of a mask free future after July 19th and part is due to a 2.5% annualised rise in UK consumer price inflation, as reported this morning. That is well above expectations and adds to the pressure on the Bank of England to bring forward its plans to tighten monetary policy. Although to be fair, inflation is a year-on-year calculation and June 2020 was in the grip of a pandemic.

Overnight movers and shakers included the Australian and New Zealand Dollars but for separate reasons. The GBPAUD and GBPNZD rates rose rapidly earlier in the week but both hit ceilings yesterday. The GBPAUD rate topped out at AUD 1.86 earlier in the week and then dipped to AUD 1.85. Since then, it has wobbled around that same range like a jelly burglar’s swag bag. The overnight news of a recovery in Aussie consumer sentiment and a 14.8% rise in new home sales kept the GBPAUD rate in range.

The Reserve Bank of New Zealand left their base rate on hold last night and signalled they would be ending their Quantitative easing program this month. That gave the NZ Dollar a boost. Having tested NZD 1.9950 yesterday, the rate is down to NZD 1.9725 this morning, having been a tad lower overnight.

EU supports investment plans to boost 12 EU States

The Euro faces a couple of central banker speeches this morning plus the Eurozone’s industrial production data. The latter is expected to be in negative territory, which is not what the EU wants to see. They have committed to supporting recovery plans for 12 members states, including Italy, France, and Spain. The EU will be borrowing €800 billion to assist and will distribute those funds through grants and loans to the member states. The positives of this haven’t boosted the euro and I suspect the immensity of the debt is the factor holding the shared currency back. The combined effects of the positive UK data and this caution is letting the GBPEUR rate test that pesky €1.1750 level again. If this pair can get above €1.1800, I think we can see.

This afternoon will bring the Bank of Canada’s interest rate decision. Nothing is likely to change but the content of the statement that confirms the rate remaining at 0.25% will be interesting as traders try to assess the timing of monetary tightening. GBPCAD is at CAD 1.73 this morning; the highest level since the end of April.

Zuma riots continue to weaken Rand

The carnage in South Africa continues. 72 people have lost their lives and a hospital was set on fire in a moronic act as demonstrators protest about the jailing of the former President. The ongoing violence is continuing to damage the South African Rand. GBPZAR is up to R20.33 this morning and the momentum is still suggesting higher levels at this point.

That should be enough to keep us busy. Have a great Wednesday everyone.

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