Dollar softens following easing of US inflation.

US CPI inflation data for July came out lower than expected causing a reaction across a number of markets including the dollar. There was also a positive figure from the core rate, which remained unchanged from its June reading of 5.9% compared with the expected increase to 6.1%.

Yesterday’s CPI data gave markets the chance to assess weather we will see a 50bps or 75bps rate hike in September, with CPI data leading markets to believe a 50bps hike now looks the most likely. The inflation data also coincided with dollar weakness within the market.

The BoE provided a detailed assessment of its view of the inflationary and economic outlook in the August edition of its Monetary Policy Report. The report noted that the level of uncertainty around its projections was exceptionally high, with significant risks around its baseline assumptions. Therefore it emphasised that given this heightened uncertainty it was placing much less weight on its base case than previously and more attention should be focused on its alternative scenarios. Across all scenarios, the UK economy enters recession.

In the UK, energy bills could increase ahead of the expected rise in October, the UK’s energy regulator has revealed. Ofgem and industry body Energy UK said it was “possible” for suppliers to raise customers’ direct debits before the new cap on energy prices kicks in. Any rises would be to help spread the cost of higher energy use in the winter months, Ofgem said. Households have been warned of sharp rises in energy prices, with average bills forecast to reach £4,200 in 2023.

In terms of its forward guidance, the ECB is no longer providing any, other than that rates will continue to rise. The meeting statement noted that at its upcoming meetings further normalisation of interest rate will be appropriate. The ECB stated that the front loading of its exit from negative interest rates will allow it to adopt a meeting-by-meeting approach to interest rate decisions

Economic Calendar

12:30Initial Jobless Claims(Aug 5)263k260k
12:30Initial Jobless Claims 4-week average(Aug 5)254.75K
12:30Producer Price Index ex Food & Energy (YoY)(Jul)7.6%8.2%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.