Optimism on Inflation Boosts Forex Market

• The Euro reaches a high before stabilizing
• The Dollar’s fall helps the Pound
• Stocks soar high with the slowdown in inflation

The big news of the day for the Forex market and beyond is the positive sentiment surrounding inflation in the United States, at least. The Bureau of Labour Statistics reported that July CPI data came in better than expectations. This helped the major Forex currencies, as well as Wall Street stocks, to rise sharply during the day. Both the Euro and the Pound benefited from the Dollar sell‑off to close the day higher, while Wall Street stocks enjoy a very hopeful rally to close the day higher.

The Euro reaches highs during the day

The Euro and those who trade the common currency have endured a period as challenging as never before. The currency has been traded at parity with the US Dollar on recent occasions and even below. Today it brought a bit of relief to the market, as the Dollar sold off in response to CPI data that were better than analysts had forecast. The pair hit its highest levels in more than a month, near 1.04.

This stabilized later in the day, but the Euro is still trading positively at 1.03 and looks ahead to the second half of the week. The annual inflation rate in the United States managed to drop to 8.5%, which is a 0.2% better move than expectations and seems to indicate slowing inflation.

The British Pound is also supported by inflation news

The British Pound has suffered during the recent period and has not really managed to gain momentum from the beginning of the pandemic in 2019 in any significant way. The Dollar sell‑off early in the day gave the Pound a bit of breathing room. The currency rose to a two‑week high above 1.22, which remained near the end of the day.

The Pound undoubtedly benefited from the same positive inflation sentiment that saw traders sell the Dollar today. While CPI numbers were more positive than expectations with welcome declines, core inflation data also came in lower than expected. Both of these factors are likely destined to mitigate any interest‑rate hike by the Fed.

Wall Street strong with confidence returning

Just as Forex brokers, equity brokers also noted a positive uptick in trading today, as relief from better‑than‑expected CPI data and lower inflation numbers was felt across the board. A generally good week for markets was made even better today, as traders opened with more confidence during the day.

All three major US indices moved in the right direction for most of the day, after the release of the positive CPI numbers. The S&P 500 gained more than 2% to close at its highest level in over three months. The Nasdaq also closed with a 3% increase for its best close since April. The Dow Jones finished the day with an increase of over 1.5%.