Stronger inflation figures put dollar on the front foot

After trading softer in the wake of the Federal Reserve minutes release yesterday, the dollar recovered on the back of a strong PPI inflation release and increasing political headwinds for the pound. The US producer price index lurched ahead of expectations in September as core prices grew at twice the rate that analysts had forecast, with no impact on data collection following the hurricane season in the south-east. Much of the leap in producer-facing prices was as a result of energy input costs (the likes of gasoline and distillates) which could reverse in the coming months as the weather calms down.

Markets haven’t carried the dollar significantly higher as they’ll be waiting for any price rises to carry through into tomorrow morning’s CPI print, which is already expected to show a hotter inflation picture.

Markets left wanting for more clarity from the Fed

Yesterday’s minutes from the most recent meeting of the Federal Reserve highlighted that not all members are completely sold on the inflation picture confirming a hike in interest rates in December.

The look therefore is one of data dependency and none will be more important than the US consumer inflation number due tomorrow. While any inflation report is multi-faceted there is an element of binary decision making that markets will make tomorrow; good number and the dollar recovers, bad number and further proof will be needed for the dollar and US debt markets to get comfortable with the idea of the Federal Reserve raising interest rates once again.

President Trump’s tax plan continues to move the USD as well and, with little new insight, the wait is becoming a drag on the USD. During a meeting with Canadian PM Trudeau on Wednesday, US President Trump said that if NAFTA members can’t renegotiate a trade deal, “it’ll be terminated and that will be fine.” Trump added that the US would pursue a separate trade deal with Canada or Mexico if a deal couldn’t be reached with both countries.

Pound down in the dumps as Brexit talks stall

Michel Barnier, the EU’s chief negotiator, prompted swift weakness in sterling as he stated there has not been sufficient progress in talks to move on to the next stage of the discussions. No next stage means no trade talks, and trade talks are what the UK needs to secure an economically sound trade deal when Brexit eventually comes to fruition.

The stalled talks are still bogged down in the so-called divorce fee, the sum the UK would transfer to Brussels to settle outstanding liabilities. Those looking to sell sterling, not to mention 10 Downing Street, will be hoping for progress on this soon in order for trade talks to begin when EU leaders meet next week.

Have a great day.