US Dollar Near Two-Week High After US CPI Exceeds Forecasts
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The US dollar remained near a two-week high early Wednesday after stronger-than-expected inflation data increased expectations of a December rate hike by the Federal Reserve (Fed). The US Dollar Index (DXY) traded around 102.30 after gaining approximately 0.5% on Tuesday, while the euro and sterling weakened against the US currency.
The US Consumer Price Index (CPI) increased by 0.4% month on month in October, exceeding forecasts of 0.3%, while core CPI rose by 0.3%, above expectations of 0.2%. Fed Governor Christopher Waller also indicated that a larger December rate hike could be considered if inflation pressures remained elevated. US Treasury yields increased following the data as investors reassessed the outlook for Fed interest rates.
Sterling traded near 1.3321 against the US dollar, despite comments from Bank of England (BoE) Deputy Governor Clare Lombardelli that further interest-rate increases remained possible in December or February. Meanwhile, EUR/USD declined towards 1.1142, although European Central Bank (ECB) chief economist Philip Lane suggested that another rate hike could be necessary in December.
Elsewhere, the Australian and New Zealand dollars came under pressure, while the Japanese yen weakened towards 158.82 against the US dollar. Market attention now turns to Thursday's UK economic growth figures and upcoming US labour-market data for further indications of the monetary policy outlook.
GBP: Sterling Weakens Despite BoE Rate Outlook
GBP/USD: 1.3321 | EUR/GBP: 0.8366
Sterling weakened against the US dollar on Tuesday, with GBP/USD trading near 1.3321 early Wednesday after falling below 1.3400. Sterling's decline coincided with stronger-than-expected US inflation and increased expectations of further Fed rate hikes, despite the possibility of additional UK monetary tightening.
Meanwhile, BoE Deputy Governor Clare Lombardelli warned that persistent inflation could justify another rate hike in the near term. She did not rule out an increase in December or February, although future decisions would depend on incoming economic data. The BoE raised its benchmark interest rate to 4.00% last week.
Against the euro, sterling also eased, with EUR/GBP trading around 0.8366 amid lower oil prices and expectations of further ECB tightening. Market attention now turns to Thursday's UK gross domestic product (GDP) figures, with economists forecasting 0.7% growth in the third quarter. A weaker-than-expected reading could add pressure to sterling.
Key technical reference levels for GBP/USD: Resistance sits near 1.3365, followed by 1.3419, while support sits around 1.3322, followed by 1.3314.
Key technical reference levels for EUR/GBP: Resistance sits near 0.8365, followed by 0.8400, while support sits around 0.8320, followed by 0.8300.
EUR: Euro Weakens Despite ECB Rate Signals
EUR/USD: 1.1142
The euro weakened against the US dollar on Tuesday as stronger-than-expected US inflation increased expectations of further Fed rate hikes. EUR/USD briefly fell below 1.1150 before recovering towards 1.1142 early Wednesday. The pair remained within its recent trading range of 1.1100-1.1300 amid higher US Treasury yields.
ECB chief economist Philip Lane indicated that another rate hike in December could be appropriate if economic conditions remained unchanged. He also warned that underlying inflation pressures could persist even if falling energy prices reduced headline inflation. However, these comments provided limited support against the stronger US dollar.
Lower oil prices offered some relief to the eurozone's energy-cost outlook, although concerns about France's fiscal position remained relevant. Investors will now assess upcoming ECB commentary and Friday's updated eurozone GDP figures for further indications of the region's economic outlook.
Key technical reference levels for EUR/USD: Resistance sits near 1.1202, followed by 1.1250, while support sits around 1.1104, followed by 1.1000.
USD: Dollar Holds Gains After Inflation Surprise
DXY: 102.30
The US dollar remained near a two-week high early Wednesday, with DXY trading around 102.30 after gaining approximately 0.5% on Tuesday. October's stronger-than-expected inflation figures coincided with increased expectations of further Fed tightening, while higher Treasury yields may have provided additional support to the currency.
During early Wednesday trading, market pricing indicated an approximately 85% probability of a 25-basis-point Fed rate hike in December and a 15% probability of a larger 50-basis-point increase. Fed Governor Christopher Waller had indicated that a larger move could be considered if inflation remained elevated. Meanwhile, the US 10-year Treasury yield rose towards 5.00%, reflecting the shift in interest-rate expectations.
Despite hopes for progress in US-Iran negotiations, inflation concerns remained an important consideration for the dollar. Investors will now monitor Thursday's US jobless claims and Friday's producer price figures for further indications of inflation pressures and the potential direction of Fed policy.
Other Currencies: AUD, NZD and Yen Weaken Amid Higher US Yields
AUD/USD: 0.6875 | NZD/USD: 0.5606 | USD/JPY: 158.82 | GBP/JPY: 211.94
The Australian dollar declined by approximately 0.9% against the US dollar on Tuesday, with AUD/USD falling below 0.6900 before stabilising near 0.6875 early Wednesday. Stronger-than-expected US inflation and increased expectations of Fed rate hikes weighed on the currency. The Australian dollar also faced domestic pressure following a decline in consumer confidence, with the latest Westpac survey showing sentiment falling to 78.2 in November.
The New Zealand dollar also weakened, with NZD/USD retreating towards 0.5600 on Tuesday before recovering slightly to around 0.5606. The currency surrendered part of Monday's post-election gains amid higher US Treasury yields and broader US dollar strength. Uncertainty surrounding New Zealand's closely contested general election remained another consideration for investors.
Meanwhile, the Japanese yen weakened against the US dollar as rising US Treasury yields increased the interest-rate differential between the two countries. USD/JPY approached 159.00 on Tuesday before settling near 158.82 early Wednesday, while GBP/JPY traded around 211.94. Expectations of further tightening by the Bank of Japan (BoJ) remained relevant, while Fed rate expectations may have been particularly influential in the yen's near-term movements.
Current Rate Table
| Pair | Rate | Trend |
|---|---|---|
| GBP/USD | 1.3321 | Bearish bias |
| EUR/GBP | 0.8366 | Range to firm |
| EUR/USD | 1.1142 | Bearish bias |
| AUD/USD | 0.6875 | Bearish bias |
| NZD/USD | 0.5606 | Soft |
| USD/JPY | 158.82 | Bullish bias |
| GBP/JPY | 211.94 | Range to firm |
Market Lookahead
Wednesday, Nov 11
- EUR - Germany CPI & HICP (Oct, Final)
Thursday, Nov 12
- GBP - GDP (Q3) & GDP (Sep)
- USD - Initial Jobless Claims
Friday, Nov 13
- EUR - Eurozone GDP & Employment Change (Q3)
- USD - Producer Price Index & Core PPI (Oct)
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