Daily Market Update

Dollar crumbles as CPI slows down to zero

August 10, 2022

The U.S. Dollar is losing ground as the markets react to the inflationary numbers from this morning.

Overview

Consumer Price Index figures for July revealed there was actual 0.0% vs. 0.2% growth for the month when including Food and Energy costs. It has helped that we have had a streak of over four weeks of gas prices cooling down. The yearly figure when excluding Food and energy now stands at 5.9% vs. 6.1%. It is not quite the 2.0% target, but it certainly lowers expectations of Fed aggressiveness down the line. It is priced in the Fed will do more hikes, but it may slow down or stop sooner rather than later.Thus far, this is the narrative, diminishing buck strengthening. It is possible that there will be fewer bets on increases beyond September, and this also seems to be helping equities, which have withstood recent outlooks for a deeper downturn. We have foreseen a turnaround for the buck, this could be one of the first steps in long-term depreciation.While inflation seems to be easing here, the global central banks are determined to combat the decades-long pace of price growth. This means currencies across the board may recover plenty of what they have lost lately. Nevertheless, a strong American economy could hit the brakes on the advancement of some. We have witnessed a loss of over 1.2% on average for all peers against the USD since the release of CPI.

 

What to Watch Today…

  • No major economic events are scheduled for today

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EUR

Euro is back to its best levels since the start of July, continuing a roller-coaster ride all year as expectations for battling inflation grows. While numbers in the U.S. are evidence pressures are easing, the energy crisis, as well as the supply chain, has been much rougher on Europe, and prices for consumers are causing all types of havoc.

While growth surprised in Q2’s initial numbers for GDP, we expect a lot of work ahead for both government as well as the European Central Bank. For now, the shared currency is up and could have room for further growth if all falls into place and if chances of conflict resolution somehow improve.

 

GBP

The Sterling’s recovery is also due to the lack of inflationary growth in July in the U.S. U.K. Gross Domestic Product figures on Friday will be a major opportunity to see if Pound also has room for more appreciation. Nevertheless, we feel the negative outlook for the second half of the year from the Bank of England itself will keep the Sterling from rising too quickly.

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