Monex: Dollar picks up ahead of this afternoon's US inflation data

Monex: Dollar picks up ahead of this afternoon's US inflation data

10 november 2021

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This is a commentary by Ima Sammani, FX Market Analyst at Monex Europe, on the USD, EUR en GBP exchange rates.

USD

After a mixed session yesterday, the dollar ticked up this morning along with Treasury yields ahead of key US inflation data at 14:30 CET. With this week’s economic calendar being rather sparse for most of the G10 countries, all focus will be on today’s US consumer price data which will likely show an acceleration in October.

CPI is expected to rise 5.9% YoY and 0.6% MoM, while core inflation is set to climb 0.4% MoM - twice the level of September’s reading. A higher than expected CPI print should kickstart a move in bond markets and the dollar as market implied rates have shown limited reaction to the Federal Reserve’s pushback on rate hike expectations so far, as evidenced by eurodollar futures. This means policy expectations are still high as markets continue to price in a rate hike for 2022 despite some Fed members pushing back on this idea. 

EUR

Similar to the pound, movements in the euro were bog standard as domestic headlines were sparse and mixed results from the German ZEW survey failed to lead the currency in a certain direction. Optimistic expectations were offset by a worsening assessment of current conditions in the survey, despite Monday’s survey data from the eurozone printing higher.

Comments from European Central Bank’s Isabel Schnabel also failed to move the currency when she stated the ECB risks exacerbating inequality if it raises interest rates before stopping asset purchases. EURUSD may see further weakness today if US CPI figures print to the upside, while the eurozone data calendar does not include any top-tier data. 

GBP

Price action in the pound has been nothing to write home about over the last 24 hours. With very limited coming across in the shape of headlines, GBPUSD has been driven by broader market flow. Although, the pound's resilience to close lower against the dollar in bouts of broader USD strength in G10 FX markets has been notable and suggests traders may have settled on a more comfortable short-term equilibrium post Bank of England.

This was also the case in front-end Gilt yields, which rallied 6bps in yesterday’s session where other core front-end bonds saw yields decline. Markets are slowly coming around to the idea of a minimum 40bps worth of hikes by the BoE over the coming year or so, again putting a floor under the 2-year yield. The question market participants will be asking is how long can this dynamic carry on for?

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