EUR / USD
US consumer prices increased 0.9% for October after a 0.4% increase the previous month and well above consensus forecasts of 0.6%. The year-on-year rate increased to 6.2% from 5.4% which was well above market expectations of 5.8% and the highest reading for 31 years. Energy prices increased 4.8% on the month with a 30.0% increase over the year amid a surge in gasoline prices while food prices increased 5.3% over the year.
Underlying prices increased 0.6% with the annual rate increasing to 4.6% from 4.0% and the strongest rate since 1991. There was a renewed increased in new and used car prices for the month, although the increase in rents was held to 0.5% on the month which provided some relief.
The data inevitably increased underlying market fears surrounding inflation developments within the US economy and there was also increased speculation that the Federal Reserve would have to raise interest rates more quickly than expected to curb pressure. Fed officials attempted to maintain the transitory narrative with San Francisco President Daly stating that it was premature to start altering the path of expected interest rate increases.
There was initial dollar hesitation, but the currency then posted significant gains as US yields moved higher. The Euro was also hampered by expectations that the ECB would maintain a very accommodative stance. In this environment, the Euro retreated towards the 1.1500 level. This level held last week, but there was a break below this time with the Euro sliding to 15-month lows around 1.1470. The dollar held gains on Thursday with the US currency overall at the highest level since July 2020.
JPY
Chinese new loans increased CNY826bn for October, less than half the CNY1,660bn increase the previous month, although marginally above consensus forecasts. There was also a sharp slowdown in total social financing which maintained reservations over developments in the economy.
Initial jobless claims declined slightly to 267,000 in the latest week from 271,000 previously and close to expectations while continuing claims edged higher to 2.16mn from a revised 2.10mn which continued to suggest a strong labour market and reinforced confidence in the outlook.
US Treasuries dipped lower after the US CPI and jobless claims data with the 10-year yield increasing to near 1.50%.
Following the data, inflation also moved strongly up the political agenda with President Biden stating that reversing the increase in inflation is a top priority. There were further doubts whether further fiscal stimulus would be approved in Congress given the focus on potential over-heating.
Higher yields reinforced upward pressure on the dollar and the yen also lost ground on the major crosses. The dollar posted a net advance to near 114.00.
Treasuries slid further after a weak 30-year auction, but the dollar hit further resistance close to 114.00 as equities moved lower. Narrow ranges prevailed on Thursday with some relief over the latest Chinese developments. The dollar was held just below 114.00 with US markets closed for the Veteran’s Day holiday.
GBP
There were no major UK developments during Wednesday with global developments tending to dominate Sterling price action. Overall, the UK currency was unable to make headway during the day with further uncertainties over the Bank of England policy and a lack of confidence in UK fundamentals.
Risk appetite was also slightly more cautious during the day with markets unsettled by the latest US inflation data. Sterling peaked above 1.3550 against the dollar before a slide to 1.3460 as the US currency posted strong gains. The Euro also secured a marginal advance to just below 0.8550.
RICS housing data held firm with prices again supported by supply shortages while there was a flurry of data releases at the European open. GDP increased 0.6% for October, slightly above expectations, but quarterly data missed estimates and industrial data was weak and the trade deficit widened on the month.
Sterling briefly hit 2021 lows just below 1.3400 against the dollar in Asia before a slight recovery with the Euro little changed just above 0.8550.
CHF
Global inflation developments continued to have an important impact on Wednesday following the latest US inflation data. Higher nominal yields would tend to undermine franc support, but higher inflation rates and negative real rates would tend to underpin the Swiss franc. There was also further speculation that inflation differentials would strengthen the franc over the medium term and could prompt the National Bank to tolerate franc gains. The Euro settled just above 1.0550 against the franc while the dollar posted a net advance to around 0.9165. The Euro was unable to make any headway on Thursday with the dollar firm just below the 0.9200 level.
Technical Levels
Technical Levels
