Key points:
- The US Dollar Index soared higher on upbeat US inflation data.
- The data gives the Fed room to keep hiking interest rates.
- However, the pound remained strong, driven by UK politics.
The US Dollar Index today soared over 100 pips higher following the release of upbeat US Consumer Price Inflation (CPI) data by the US Bureau of Labor Statistics. According to the report, US headline inflation rose 0.4% in September beating analysts' estimates of 0.2%.
The annualised figure came in at 8.2% versus analysts' expectations of 8.1%. The core CPI print was recorded at 0.6% versus consensus estimates of 0.5%, while the annualised core inflation print, which excludes Food and Energy costs, came in at 6.6% versus the expected 6.5%.
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However, the US unemployment claims rose to 228,000 applicants compared to the consensus estimate of 225,000, which painted a negative image of the country’s labor market. The higher unemployment claims indicate that the US jobs markets could be weakening.
The US Dollar Index’s rally saw other currency pairs, such as the EURUSD, AUDUSD, and NZDUSD, fall significantly as the greenback rallied higher. The USDCAD pair also rallied higher as the US dollar dominated its Northern neighbor.
However, the GBPUSD currency pair stood out from the pack amid positive political developments in the UK. News reports that the government was looking to reverse parts of the mini-budget that almost imploded the UK bonds markets were met with investor optimism.
British Prime Minister Liz Truss is rumoured to be considering reversing some of the unpopular measures introduced in the mini-budget that had shocked the markets. For example, Truss is calling for higher corporate taxes.
The pound remained stronger than the US dollar for the second consecutive day as other currencies, including the Japanese yen, fared poorly against the dollar, which has outperformed its peers by a wide margin.
The Bank of England has confirmed that its bond-buying programme will end on Friday, triggering a massive rally in UK gilts, but some reports indicate that the BoE has signaled some bank traders that it could extend the program if needed.
Overall, the dollar will likely remain stronger than its peers until the Fed reverses its current aggressive rate-hiking policy stance.
*This is not investment advice.
US Dollar Index price chart.
The US Dollar Index rallied 118 pips (1.05%) to trade at 113.91, rising from a low of 112.73.
