Daily Market Update

Dollar Gains on Inflation; Sterling Big Winner

September 14, 2017

After trading in fairly stale ranges overnight, except against the British pound, the U.S. dollar enjoyed some short-term gains this morning.

USD

After trading in fairly stale ranges overnight, except against the British pound, the U.S. dollar enjoyed some short-term gains this morning. The consumer price index showed that the cost of living accelerated in August. Inflation rose 0.4% month over month, beating expectations of a 0.3% rise. Core-CPI also rose 0.2%, matching estimates. The uptick in consumer prices ends a five-month streak of weaker-than-expected readings. A breakdown of the data shows that energy prices rose by the most since January and likely reflect some impact from Hurricane Harvey.

The greenback rallied in the minutes following the data as interest rate expectations ticked higher. However, the gains were relatively short-lived as the dollar gave up most of its gains within 30 minutes of the release. With no further releases scheduled for today, expect traders to look for more developments over tax reform and expectations of tomorrow Retail Sales.

 

AUD

The Australian dollar rose against the U.S. dollar on a strong jobs report. The Aussie economy added 54K jobs in August versus expectations of 20K. The majority of the jobs were full-time, boosting the Australian dollar. The gains in full-time employment market the largest seven month gain in history, totaling 260K jobs.

 

GBP

The British pound jumped nearly one percent against the U.S. as interest rate speculation increased. As expected, the Bank of England members voted 7-2 to keep rates unchanged. However, the policy statement that accompanied the decision took a hawkish turn. The statement said that the market is currently underpricing the prospect of a rate increases. As a result, expectations for a rate hike shot higher. The implied probability of a 25-basis point rate hike by November rose to 50%, compared to 40% before the BoE announcement.

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