The US dollar has strengthened dramatically overnight following the release of very strong inflation data.
US inflation hit 6.2% which was much higher than the 4% analysts had predicted. To put this into perspective, the last time inflation was this high in the States was in 1990. This clearly adds fuel to US interest rate hike predictions which has increased the appeal of the USD. As a result, the GBP/USD has fallen around 2-cents and to its lowest level since December 2020.
The inflation data over the Pond has also impacted the EUR/USD rate which has hit the lowest level since July 2020. Rising Covid cases in Europe have been putting pressure on the Euro. For example, Germany has seen a record 50k new cases reported in the last 24 hours. The ECB also appear in no rush to put interest rates up which has reduced the attractiveness of the single currency. As a result, the Pound has been holding its own against the Euro of late, however we are currently trading towards the lower end of the range and 1.5% off the highs of mid-October.
Traders will be watching out for comments from Fed officials over the coming days. Sterling traders will also be waiting to see how the UK inflation figures (CPI) come in next week (Weds) to see if that will ramp up pressure on the BoE to act sooner – particularly after they disappointed the market last week.
