A stronger-than-expected set of inflation data out of the US on Wednesday was not enough to prevent the Dollar falling for another day, with the greenback slipping to its lowest level in over a week.
Headline inflation in the US experienced its largest monthly increase in over a year in January, reinforcing the view that the Federal Reserve could raise interest rates on as many as four occasions in 2018. Prices rose by 2.1% in the first month of the year after investors had eyed a slowdown to 1.9%, while the core measure also came in unchanged at 1.8% versus the 1.7% consensus. Investors bought the Dollar off the back of the news, temporarily sending the greenback around half a percent higher. This, however, proved shorted lived and the currency failed to hold onto its gains, losing ground as the session went on to end the day comfortably lower.
News out of the US yesterday was a bit of a mixed bag, and the release of a disappointing set of retail sales figures were partly to blame for the currency’s retrace. Sales actually fell in January by 0.3% after investors had eyed a modest increase, raising concerns over the strength of domestic demand in the New Year. A host of economic data releases in the US, including the latest industrial production numbers, have the potential to shift the greenback today.
South Africa’s Zuma resigns, Johnson talks up transitional Brexit
Possibly the main news story in financial markets yesterday was the long awaited resignation of Jacob Zuma as President of South Africa. The widely unpopular Zuma, who has been plagued with allegations of corruption over the past few years, resigned following intense pressure from his own party, despite recent refusals to quit. The reaction in the Rand was actually fairly muted, although the currency did rally to a fresh two-and-a-half year high.
Meanwhile, Sterling and the Euro both benefited from broad US Dollar weakness. The Pound received an additional boost from UK Foreign Secretary Boris Johnson, who seemingly supported the idea of a transitional Brexit period during a speech yesterday. The Euro benefitted from a return to risk appetite and an impressive set of industrial production data. Output in the industrial sector jumped by 5.2% in the year to December, continuing to solidify the argument that the Eurozone economy is expanding at a much faster pace than the market had accounted for.