US Dollar Exchange Rates Strengthen Following Strong Inflation Figures
During this afternoons trading session we heard that the latest set of US Consumer Price Index figures, a key measure of core inflation came out better than expected at 1.4% which was in fact double the figure seen last month, the largest gain in 4 and a half years. This sharp jump was mainly attributed to rising rental and medical costs and gives further support to the Federal Reserve Bank of America (FED) raising interest rates again in the more short term. With the debate on when interest rates in the US will be hiked again hotting up, today’s data release will only add fuel to the fire that the FED can and will act soon.
The FED became the first Central Bank of a developed economy to raise interest rates since the global financial meltdown and as a result the US Dollar strengthened considerably as investors sought to not only put their funds into what is considered a safe haven but also to benefit from the increased returns high interest rates bring. This sudden flow of funds into the USD meant its demand increased and therefore so did it’s price pushing the Dollar to some of the strongest levels we have seen for months against the major currencies. So, with news that inflation is rising at such a fast pace the expectation that Janet Yellen and the rest of the FED will now be seriously considering another rate hike possibly even as soon as March is likely to provide the USD with further support.
Following the announcement this afternoon we have seen the Dollar strengthen against both Sterling and the Euro. All eyes now will be on next weeks Consumer Confidence figures for the States, new home sales, Durable Goods orders and then probably most notably Gross Domestic Product (GDP) figures on Friday. Should we see another week of strong data, especially with the GDP figures I would not be surprised to see the Dollar strengthen even further, potentially testing the the 1.42 levels on GBP USD exchange rates. We will find out more next week, in the meantime we hope you enjoy your weekend.
