US CPI data was notably higher than expected with the headline rate at 31-year highs at 6.2%.

US CPI data was notably higher than expected with the headline rate at 31-year highs at 6.2%.

US and global inflation concerns intensified after the data with a sharp increase in volatility across asset classes. US bond yields strengthened after the data with the 10-year yield above 1.55%. Wall Street stocks lost ground, although with a close above intra-day lows.

Risk appetite held steady in Asia on Thursday amid some relief over Chinese trends. After initial hesitation, the dollar posted sharp gains to the highest level since July 2020. EUR/USD dipped to 15-month lows around 1.1470. Sterling edged lower with global moves dominating the UK currency and GBP/USD lows around 1.3400.

Commodity currencies lost out to the strong dollar and unease over central bank policy risks. The much weaker than expected domestic jobs data pushed the Australian dollar to 1-month lows.

Oil prices dipped sharply amid inflation concerns and speculation over US action to release reserves. Inflation fears triggered strong demand for precious metals, but gains were undermined by dollar strength.

US consumer prices increased 0.9% for October after a 0.4% increase the previous month and well above consensus forecasts of 0.6%. The year-on-year rate increased to 6.2% from 5.4% which was well above market expectations of 5.8% and the highest reading for 31 years. Energy prices increased 4.8% on the month with a 30.0% increase over the year amid a surge in gasoline prices while food prices increased 5.3% over the year.

Underlying prices increased 0.6% with the annual rate increasing to 4.6% from 4.0% and the strongest rate since 1991. There was a renewed increased in new and used car prices for the month, although the increase in rents was held to 0.5% on the month which provided some relief.

The data inevitably increased underlying market fears surrounding inflation developments within the US economy and there was also increased speculation that the Federal Reserve would have to raise interest rates more quickly than expected to curb pressure. Fed officials attempted to maintain the transitory narrative with San Francisco President Daly stating that it was premature to start altering the path of expected interest rate increases.

There was initial dollar hesitation, but the currency then posted significant gains as US yields moved higher. The Euro was also hampered by expectations that the ECB would maintain a very accommodative stance. In this environment, EUR/USD retreated towards the 1.1500 level. This level held last week, but there was a break below this time with EUR/USD sliding to 15-month lows around 1.1470. The dollar held gains on Thursday with the US currency overall at the highest level since July 2020.

Chinese new loans increased CNY826bn for October, less than half the CNY1,660bn increase the previous month, although marginally above consensus forecasts. There was also a sharp slowdown in total social financing which maintained reservations over developments in the economy.

Initial jobless claims declined slightly to 267,000 in the latest week from 271,000 previously and close to expectations while continuing claims edged higher to 2.16mn from a revised 2.10mn which continued to suggest a strong labour market and reinforced confidence in the outlook.

US Treasuries dipped lower after the US CPI and jobless claims data with the 10-year yield increasing to near 1.50%.

Following the data, inflation also moved strongly up the political agenda with President Biden stating that reversing the increase in inflation is a top priority. There were further doubts whether further fiscal stimulus would be approved in Congress given the focus on potential over-heating.

Higher yields reinforced upward pressure on the dollar and the yen also lost ground on the major crosses with USD/JPY posting a net advance to near 114.00.

Treasuries slid further after a weak 30-year auction with the 10-year yield above 1.55%, but USD/JPY hit further resistance close to 114.00 as equities moved lower.

Narrow ranges prevailed on Thursday with some relief over the latest Chinese developments. USD/JPY was held just below 114.00 with US markets closed for the Veteran’s Day holiday.

There were no major UK developments during Wednesday with global developments tending to dominate Sterling price action. Overall, the UK currency was unable to make headway during the day with further uncertainties over the Bank of England policy and a lack of confidence in UK fundamentals.

Risk appetite was also slightly more cautious during the day with markets unsettled by the latest US inflation data. GBP/USD  peaked above 1.3550 before a slide to below 1.3450 as the US currency posted strong gains.

RICS housing data held firm with prices again supported by supply shortages while there was a flurry of data releases at the European open. GDP increased 0.6% for October, slightly above expectations, but quarterly data missed estimates and industrial data was weak and the trade deficit widened on the month.

Economic Calendar

Expected Previous
07:00 GBP Total Business Investment (Q/Q) 2.60% 4.50%
07:00 United Kingdom GDP (Y/Y) 6.80% 23.60%
07:00 United Kingdom GDP (Q/Q) 1.50% 5.50%
07:00 GBP Industrial Production (Y/Y)(OCT) 3.10% 3.70%
07:00 GBP Industrial Production (M/M)(OCT) 0.20% 1.00%
07:00 GBP Manufacturing Production (M/M)(SEP) 0.20% 0.30%
07:00 GBP Manufacturing Production (Y/Y)(SEP) 3.10% 4.10%
07:00 GBP Trade Balance(OCT) -14.30B -14.93B
07:00 GBP Trade Balance Non EU(OCT) -8.40B
12:00 Monthly Oil Market Report

*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.