Dollar Hits New highs as US CPI Tops 9.1% in June

The US Dollar is breaking out to fresh highs today following the release of US June CPI data yesterday which showed that inflation rose to a forty-year high of 9.1%. On a monthly basis headline CPI was seen rising 1.3%, above estimates for a 1.1% increase while core inflation was seen rising 0.7%, above estimates for 0.5% increase. With inflation still at highly elevated levels, the prospect of any post-July pause in tightening from the Fed has grown weaker still, lifting USD accordingly. Traders will now look to today’s US PPI data along with Fed’s Waller who speaks, ahead of the more important retail sales data due tomorrow. 

Key Factors for Today

• USD hits fresh highs on 40-year high in CPI

• Equities markets fall on heightened Fed tightening expectations

• USD leads in FX, JPY the weakest 

• CAD rallies on surprise BOC 1% rate hike

• Oil and metals fall on stronger USD

Coming Up 

• USD US PPI

• USD Fed’s Waller speaks

• CAD Canadian manufacturing sales

Risk Sentiment Rebounds Amidst USD Softness

Risk sentiment has continued to weaken across the week with US, European and UK asset prices falling as the US Dollar continues to push higher. Yesterday’s US CPI data has all but confirmed the Fed continuing with aggressive monetary tightening beyond September. Yesterday’s larger-than-expected rate hike from the BOC has added to the risk-off tone for markets this week. Interestingly, the Nikkei has bucked this trend into the backend of the week with the index rallying amidst the drop in JPY against the Dollar. 

GBP Rallies on Hawkish Bailey Comments

In FX, the US Dollar continues to be the strongest currency over the European open on Thursday. With June CPI seen hitting fresh multi-year highs, hawkish Fed expectations look likely to keep the greenback well-bid near-term. CAD has been well supported also on the back of yesterday’s larger than expected 1% rate hike. With this latest increase, Canadian rates are now back up to 2.5%, making them the strongest in the G10 pack. Along with the rate hike, the BOC kept its hawkish guidance intact signalling further rate hikes to come. AUD has been boosted overnight also by a solid improvement in labour market data as the unemployment rate was seen falling to cycle lows of 3.5% last month from 3.9% prior. 

Gold & Silver Pause Near Lows

Gold and silver prices have been heavily hit by the fresh surge higher in USD. Both metals are under pressure across the European open on Thursday as the US Dollar breaks out to new highs. With more US data due later today and tomorrow, along with Fed speaker, both metals look vulnerable to further downside near-term. 

Oil Bounces Back Following Sharp Drop Yesterday – EIA Release Next

Oil prices are seeing net-selling across the early European session on Thursday. The stronger US Dollar is having a downward impact on prices, as are rising global recession concerns and the return of lockdowns in China. Yesterday’s EIA data is another factor leaning on oil prices here with the EIA reporting a 3.3 million barrel surplus last week, despite expectations for a 1.5 million barrel drawdown.