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News

US dollar jumps on easing inflation

 

Wednesday, September 14, 2022

The news shaping the markets today

Ukraine expressed its commitment to liberating the entire country after pushing back Russian military forces in the northeast region. US crude oil futures traded higher on the news.


Australia’s new home sales fell 16.0% in August, marking the second consecutive month of decline, which exerted pressure on the AUD/USD forex pair.


Singapore’s unemployment rate fell to 2.1% in the second quarter, from 2.2% in the previous quarter. This being the lowest jobless rate since the third quarter of 2018 sent the SGD/USD pair higher in forex trading this morning.


New Zealand’s current account deficit widened to NZ$5,224 million in the second quarter, from NZ$1,671 million in the year-ago period. However, the NZD/USD forex pair remained broadly flat after the news.


Japan’s Reuters Tankan sentiment index for manufacturers declined to 10 in September, from August’s reading of 13, which sent the Nikkei 225 index lower by more than 2% this morning.

 

What’s happening: The US dollar recorded sharp gains on Tuesday following the release of inflation data.

What happened: The US dollar remained under pressure in early trading on Tuesday, a day after the ECB announced its largest rate hike in history, of 75 basis points.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, reversed course and rose sharply after data showed some easing in inflation.

Why it matters: The US Labor Department said Tuesday that annual inflation in the country had eased for a second consecutive month to 8.3% in August. The figure reached the lowest level in four months, after July’s reading of 8.5%. However, the latest reading came in above market estimates of 8.1%.

US consumer prices rose 0.1% in August, compared to a flat reading in July and versus market expectations of a 0.1% decline. The core CPI, excluding energy and food prices, surged 6.3% year-over-year, the highest since March.

Since the Fed’s policy meeting in July, several central bank officials, including Chairman Jerome Powell, have indicated aggressive rate hikes to control inflation.

The latest CPI data showed inflation eased lesser-than-projected in August, which raised speculations of the Fed raising interest rates by as much as 100 bps at its policy meeting next week.

The US dollar index jumped around 1.44% to settle at 109.82 on Tuesday, its biggest single-day percentage surge since March 2020.

The EUR/USD forex pair fell around 1.5% to close at 0.9967 on Tuesday, while the USD/JPY rose sharply by around 1.2% to 144.56 and the GBP/USD dipped around 1.6% to 1.1494.

What to watch: Traders await the release of another major inflation report from the US today. Producer prices in the US, which unexpectedly fell 0.5% in July, is expected to rise 0.1% in August. However, the annual producer inflation rate is projected to slow to 8.9% in August, from 9.8% in July.

The markets today

UK stocks will be in focus today ahead of inflation data

Context: British markets closed lower on Tuesday, echoing the weakness on Wall Street.

Details: Investors in the UK equity market remained on the sidelines on Tuesday after economic data signalled weakness in the country’s job market. Despite the unemployment rate declining to its lowest level since 1974, there were concerns around more people leaving the workforce altogether.

The unemployment rate fell to 3.6% in the three months to July, while economists were expecting the rate to hold at 3.8%. Although the number of people in employment rose by 40,000 in the same period, it marked a sharp decline from 160,000 in the three months through June and was well below market expectations of 128,000.

The Bank of England had announced its largest rate hike since 1995 at its August meeting and there are speculations of the central bank raising rates again at its September meeting. UK’s new Prime Minister Liz Truss announced plans to cap energy prices last week.

London’s FTSE 100 fell 1.17% to close at 7,385.86 on Tuesday, snapping a three-day winning streak. The domestically focussed FTSE 250 index declined by 1.78% to 19,167. Homebuilder stocks were among the worst performers during the session amid weakness in the labour market.

What to watch: Investors await the release of economic data on inflation rate, producer price inflation and retail price index in the UK. The annual inflation rate in the UK, which climbed to 10.1% in July, is expected to accelerate further to 10.6% in August. Analysts expect producer price inflation to rise 0.6% in August, following a 1.6% increase in the previous month.

Other Markets: European trading indices closed lower on Tuesday, with the DAX 40, CAC 40 and STOXX Europe 600 down by 1.59%, 1.39% and 1.55%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/CAD – 1.3164 and 1.3171 Positive
EUR/GBP – 0.8677 and 0.8681 Positive
Silver – 19.283 and 19.331 Negative
FTSE 100 – 7384.14 and 7402.34 Negative
Nikkei 225 – 27990.16 and 28022.66 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (0.9985, 0.18%) Dow ($31,307, 0.30%) Brent ($93.34, 0.2%)
GBP/USD (1.1502, 0.07%) S&P500 ($3,962, 0.30%) WTI ($87.54, 0.3%)
USD/JPY (144.56, -0.01%) Nasdaq ($12,148, 0.26%) Gold ($1,711, -0.3%)

What else to watch today

Romania’s industrial production, Sweden’s inflation rate, India’s wholesale price inflation rate, Hong Kong’s manufacturing production, Eurozone’s industrial production, Poland’s industrial production, Ireland’s residential property prices, Israel’s balance of trade, South Africa’s retail sales, US MBA mortgage applications, gasoline stocks, crude oil inventories, and distillate stockpiles, Brazil’s retail sales and industry confidence indicator, Canada’s manufacturing sales, Spain’s consumer confidence indicator, as well as Argentina’s inflation rate.


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