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US Dollar Rallies following US Consumer Price Index Data

The US Dollar rallied on Wednesday following the release of October’s US Consumer Price Index (CPI) Data. The CPI topped 6%, resulting in rises in US treasury yields and speculation that the Federal Reserve (Fed) may pick up the pace on tapering asset purchases. The Fed’s preferred indicator is the Core Inflation Rate (CIR), which excludes food and energy prices. Core inflation was reported to have increased to 4.6%, the reading shows inflation is at its quickest pace since June. Fueled by strong demands, government stimulus, and supply chain bottlenecks, inflation is rising in line with analysts’ expectations. Fed Chair Jerome Powell recently stated that some aspects of overall inflationary pressures remain ‘transitory’ and will subside in mid-2022. However, yesterday’s reading will increase pressure on the Fed to tighten monetary policy sooner.

There are no major US releases on the economic calendar today.

Sterling Weakens as GDP Remains Below Pre-Pandemic Levels

September’s UK Gross Domestic Product (GDP) Data was released on Thursday morning highlighting a monthly increase of 0.6%, a rise of 1.3% quarter on quarter for Q3. The print was slightly below consensus for 1.5% and significantly lower than 5.5% in Q2. A slowdown in the pace of growth in the second half of the year was expected as the boost from economic reopening in services in Q2 would not be sustained. However, there is widespread evidence that supply bottlenecks are hampering the ability of many businesses from meeting strong demands, slowing the pace of economic recovery. Today’s updated figures mean the economy is 2.1% smaller than in the final 3 months of 2019 before the Coronavirus (COVID-19) pandemic hit. The Bank of England (BoE) forecasts growth to moderate further in Q4 to around 1.0%.

The UK economic calendar is light for the rest of Thursday with attention turning to the release of key inflation and employment data.

European Central Bank (ECB) Members Expect Inflation to Fall in 2022

There was little in the way of the Eurozone Macro-Economic Data yesterday to provide much direction for the single currency. The Euro was, however, weighed down by expectations that the ECB would maintain an accommodative stance to monetary policy in 2022. Notably, ECB member Klaas Knot commented earlier in the week that conditions for a rate hike are very unlikely to be met in 2022, despite higher energy prices and supply bottlenecks lasting longer than expected. He further noted that Eurozone inflation is likely to fall below 2% towards the end of 2022 but the Central Bank should prepare for upside scenarios. As a result, we saw both the EUR Euro / USD Dollar move lower to the 1.1500 handle.

Looking ahead to today, we have the Autumn European Commission Forecasts which will be closely watched to see how much the 2022 inflation expectation has been revised higher. Other than that, it is another relatively quiet day for Eurozone Data.

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