Dollar Returns to Strength Following Sell Off

• Thursday Dollar Index Decline Rebounds
• Euro Back Under Pressure
• Stocks Largely Positive Ahead of Weekend

The US Dollar forex market, and more specifically, the US Dollar Index, dropped back through the middle of the week and Thursday. This comes even though the CPI inflation numbers came in higher than anticipated. The Index has now started to consolidate and in turn, put some further pressure on the Euro and a somewhat recovering Pound Sterling. On Wall Street, overlooking the hot inflation data, markets rose early in what looks as though it will be a positive start to the day on the street.

Dollar Index on Back Foot But Improving

The US Dollar Index, a measure of the currencies’ strength against a basket of other major currencies, has been trading very close to or above all-time highs for a prolonged period of time. While remaining at a very strong level, the index has felt some pullback in recent days. The release of CPI figures that were stronger than expected has played a role, though not the one which many analysts may have predicted. 

The data came in above what was anticipated with Core CPI in the US climbing to 6.6% in September. This is an increase of 0.3% on the previous month, and altogether not good for those in forex trading that are concerned about increasing inflationary pressure. Traders did not react in a very negative manner, however, with the Dollar instead remaining stable and other currencies as well as the stock market gaining. 

Euro Moves Lower as Pressure Returns

Yesterday’s improvement in the market sentiment and an overall risk-on approach from those trading with forex brokers was generally positive for the Euro. This came as traders appeared to discount the possibility of a large increase in interest rates at the next Fed meeting. Early in the Friday session, however, the Dollar has inevitably started to recover from the previous day of being lightly traded. 

This has placed pressure back on the common currency once again. Having experienced a turbulent day on Wednesday with lows below $0.97 followed by high points above $0.98, the EUR/USD is again restricted by the returning strength of the greenback. At the time of writing, the pair is trading at around $0.975 during the day in Europe with September Retail Sales data to come in the US. 

Stocks Trade Cautiously Ahead of Bank Earnings

Markets on Wall Street also endured something of a rollercoaster day on Thursday. Initially, when the inflation data was released, the Dow Jones dropped more than 500 points while the other key indices followed a similar trajectory. This turned around later in the day as traders took pause to consider the impact. 

While persistent inflation remains an important issue and concern, the initial sales were deemed excessive and the markets ended the day considerably higher. The Dow finished up more than 800 points while the S&P and Nasdaq both added more than 2%.