Miss on CPI wipes out yesterday’s progress for the dollar

After a producer prices print that saw higher energy prices boosting the headline figure, this morning’s CPI number was a disappointment. While annualized CPI still topped the 2% level, month-on-month price growth fell well below forecast at 0.1% for core items. Energy price inflation was still present: gasoline prices rose over 13% in September alone, but falls in the price for healthcare and automobiles countered this impact.

Slower rates of inflation (particularly for the consumer) will prevent the Fed from pursuing a particularly steep series of interest rate hikes and as such both GBP/USD and EUR/USD have rallied. This, twinned with weaker than expected retail sales, has hampered any further strength in the dollar as EUR/USD retests the week’s highs.

Hopes for an EU/UK transition period ebbing away

Despite apparent positivity from Brussels late yesterday on a transition period to help ease the economic shock the UK economy from an EU departure, German government officials poured cold water on the idea this morning by stating it is far too soon to discuss anything beyond 2019. Back to deadlock it is then.

Germany’s comments have slowed any strength in sterling, but the UK currency still remains higher against both the euro and the greenback in the final day of trade for the week.

ECB likely to extend QE beyond December

With political rumblings in Spain ebbing away, the attention’s turned back to the European Central Bank who, according to Reuters, are broadly in agreement to extend their asset purchase program from their October meeting onwards. At present, their asset buying schedule ends in December, so a modest extension seems reasonable to keep the Eurozone on track.

EUR/USD’s staged a firm rally this week, but these ECB headlines will keep the single currency from amassing much further strength.

Have a great weekend.