USD

The dollar fell sharply on Thursday after US inflation data came in softer than expected and suggested underlying inflation had peaked. The CPI reading for October signals to the market that the Federal Reserve could look to slow the pace of its interest rate hikes.

The slowing Consumer Price Index sparked big gains in major foreign currencies against the dollar, the British pound rose and was on for its biggest one-day rise in over a year. The annual increase in headline inflation fell below 8% for the first time in eight months, a slowdown that led Treasury yields to plunge and put the benchmark ten-year Treasury note on pace for its largest daily decline since March 2009.

CPI year-on-year fell from 8.2% to 7.7% in the month of October. Furthermore CPI month-on-month to October rose to 0.5% but missed market expectations by 0.1%.

The dollar has strengthened massively this year and some analysts are now predicting that the US currency may have peaked, it is up 16% so far this year.

Money markets are now pricing in a higher chance of a 50 basis points interest rate rise in December, which is likely to hurt the dollar moving forward. The dollar’s next move will be dependent on comments from Fed members.

GBP

Sterling benefitted from dollar weakness on Thursday and edged higher against the greenback after the release of US CPI data. Inflation may have peaked in the US which indicates to the markets that the Fed may not be as aggressive as they previously have been.

Sterling’s rally against the dollar could stall as investors now await new Prime Minister Rishi Sunak’s budget which is set to be released next week. The Autumn Budget will give further clues as to what is next for Sterling.

Key announcements

07:00 – GBP – GDP m/m – Forecast at -0.4% from previous -0.3%