IFX Market Report: Wednesday 14th July 2021

Cable came under pressure on Tuesday as US CPI data indicated that inflation is at its highest point in 13 years. The CPI Index rose last month at its fastest pace since August 2008, up 5.4% from the previous year. On a monthly basis, the Bureau of Labor Statistics printed gains of 0.9%, the biggest one-month jump since June 2008. This pace of acceleration was widely missed by forecasts and came unexpectedly, thus “challenging the view within the Federal Reserve and White House that high inflation during the US recovery will be temporary”. The US Central Bank went as far as describing elevated inflation figures as “transitory”, which will fade as COVID-19 lockdowns ease and supply catches up with pent-up demand. Officials from the Fed “predicted that their preferred gauge of core inflation would rise by 3 per cent this year, before drifting back down to 2.1 per cent in 2022”. However, with the shockingly high inflation print yesterday the Fed could be under pressure to “consider slowing monetary stimulus by reducing asset purchases more quickly than previously thought.” Fed Chair Jerome Powell is due to give his testimony at 17:00 (GMT) today, it’s highly likely Congress will be questioning him on the matter. If Powell is to give any signs that the Fed may act on inflation, it would likely cause further USD price action.

Surprisingly high inflation figures enabled the US Dollar Index (DXY) to rally on Tuesday, creating unfavourable conditions for Cable. GBPUSD opened the session relatively well supported at 1.3884 but made moves to the downside as the day progressed, finishing the day at 1.3844.

GBPEUR spent the day fluttering between 1.1710 and 1.1685 – a rather tight range. The pair opened at 1.1708 and despite dipping into the 1.16’s was able to find some resilience to close exactly back where it opened (1.1708).

As the DXY picked up on the day, naturally the Euro depreciated. EURUSD opened the day at 1.1858 and closed the session at 1.1824.