📊 US Inflation Reversal, UK GDP Growth and Dollar Volatility Drive FX Markets.

USD – The dollar briefly surged to fresh highs after hotter-than-expected US inflation of 3.7%, before reversing its gains overnight. Markets remain divided over an October rate hike, with retail sales, jobless claims and PPI inflation in focus today.

EUR – The euro fell to a fresh 17-month low against the dollar before recovering as the US currency weakened. With eurozone industrial production the only major data release today, attention remains firmly on the US economic outlook.

GBP – Sterling recovered overnight after initially falling following the US inflation report. UK GDP grew by 0.1% in August, beating expectations of a 0.1% contraction, while comments from the Bank of England’s Breeden and further US data are in focus today.

USD: The dollar initially surged to fresh highs yesterday after US inflation came in at 3.7%, above expectations, but subsequently reversed all its gains and more. Despite a rise in the implied probability of an October rate hike, markets still consider it more likely that the Federal Reserve will hold interest rates steady in two weeks. The dollar’s decline came even as the Nasdaq fell 2%, suggesting investors are focusing more on narrowing US interest rate differentials than traditional safe-haven demand. Today brings another busy data calendar, with US retail sales, jobless claims and PPI inflation all due this afternoon. These releases could influence expectations for the Fed’s next move and drive further volatility in the dollar.

EUR: The euro followed the broader dollar movement yesterday, falling to a fresh 17-month low against the US currency before recovering overnight. With limited eurozone economic data scheduled today, industrial production is the main release to watch this morning. Attention will otherwise remain on US economic figures and changing expectations for Federal Reserve interest rates, which are likely to drive the euro’s direction in the near term.

GBP: Sterling followed a similar pattern to other major currencies against the dollar, falling sharply after the US inflation report before recovering overnight. UK economic data provided further support this morning, with GDP growing by 0.1% in August, beating expectations of a 0.1% contraction. While the stronger-than-expected figure offers some reassurance about the UK economy, attention is likely to remain on US data, particularly retail sales, jobless claims and PPI inflation. Bank of England policymaker Sarah Breeden is also due to speak at the IMF meetings this morning, with her comments potentially offering further insight into the UK interest rate outlook.

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