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Forex Market Majors Struggle Against Dollar as Inflation Jumps

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  • Both Euro and Pound Slipped on Higher CPI Revision
  • Inflation Concerns Likely to Boost Dollar
  • Earnings Season in Focus on Wall Street

A busy morning has kicked off in the forex market with the major news that looks set to drive the day being the upward revision of June CPI figures. This put them at 5.4% which is well above the expected number and the immediate result has been a fast retreat of both the Pound and Euro trading with the Dollar. This brings back into frame the inflation concern that has broadly plagued the economy in recent months as business continues to gather pace. The other major focus of the day remains on Wall Street where the earnings season has started strongly.

USD Gathers Strength on Inflation Surprise

The June CPI data was already expected to come in hot at 4.9%. This puts it well above corresponding European numbers that were also confirmed today. The upward revision though appears to have tilted the scales and reignited the concern of many in forex trading. The Euro and Sterling quickly fell back as news broke and traders flocked to the relative safety of the Dollar.

Forex brokers will be keeping a close watch on what the rest of the day has in store and whether anything can be done to quell the movement and increasing concern. The unexpected jump in the CPI numbers was matched also by a strong leap in the core inflation number which rose by 0.7%.

Continued Momentum Possible Amid Upside Surprise

The revised data that has pushed inflation figures higher will certainly give new life to those analysts and traders who have previously voiced concerns that the economy is coming back strongly with too much fiscal assistance in play and that inflation could be a major issue. This is despite the fact the Fed has, and continues to maintain a viewpoint that such inflation will be transitory.

In any case, the Dollar strength is the story of the day as the US Dollar Index, a measure of the currencies strength against a basket of other major FX currencies continues to move higher, closing in on 93 points today.

Busy Earning Season Starts Positively

Despite very positive earnings reports from the likes of PepsiCo and JP Morgan today, both of whom reported what could be considered blowout earnings for the previous quarter, futures were down across the board on Wall Street. The reason is likely to be two-sided.

Firstly, these earnings have been somewhat overshadowed by the extreme CPI data reported by the Labor Department which has also prompted a small rise in treasury yields. Secondly, and perhaps most importantly, with all the major indices trading around all-time highs, such impressive earnings may already be priced in. This creates a situation where even the biggest numbers can lead to a dip in stock prices. Such a trend has been reflected early in what could be a choppy day on the street.

Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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