Forex Today: Dollar remains strong after US CPI

During the Asian session, the Business NZ PMI and the Food Price Index for July are scheduled to be released. Later in the day, the UK will release important data, including the Q2 GDP and Manufacturing Production figures. Additionally, more inflation data from the US is expected with the release of the Producer Price Index (PPI) and the University of Michigan Consumer Confidence Index.

Here is what you need to know on Friday, August 11:

The US Dollar strengthened on Thursday, supported by higher US Treasury yields. Inflation data from the US indicated an acceleration in the Consumer Price Index (CPI), rising from an annual rate of 3% to 3.2%. However, this figure fell slightly below the market expectation of 3.3%. Another economic report revealed an increase in Initial Jobless Claims to 248,000, surpassing market estimates of 230,000.

RBC Economics on US CPI and the Fed:

Easing inflation pressures in the U.S. against a resilient macroeconomic backdrop have been encouraging and have raised hopes that inflation can slow back to the Fed’s 2% inflation objective without a substantial deterioration in the economy. We still think that is unlikely, given early signs that consumer purchasing power is already taking a hit (…) Absent a larger reacceleration in inflation, the Fed is unlikely to push interest rates higher. We expected the Fed will keep rates steady into 2024, while waiting for more signs of a softening economy to show up. 

After a period of weakness, the Greenback reversed its course and turned positive across the board. The US Dollar Index rose above 102.50, marking the highest daily close in a month, although it remains below the 102.80 resistance level.

US Treasury yields surged, with the 10-year reaching 4.10% and the 2-year at 4.84%. Stocks on Wall Street finished slightly higher, supported by expectations that the Federal Reserve won't raise interest rates further.

More inflation data from the US is expected on Friday with the release of the Producer Price Index (PPI), which is anticipated to rebound from 0.1% to 0.7% (annual rate). The University of Michigan Consumer Confidence survey is also scheduled for release.

EUR/USD initially rose above the 20-day Simple Moving Average (SMA) at 1.1050 but later turned downwards, falling below 1.1000. The pair continues to move sideways, trading between key SMAs and a key support level at 1.0925.

The Pound lagged on Thursday ahead of key economic data from the UK, including Q2 GDP and Industrial Production figures, scheduled for release on Friday. GBP/USD posted the lowest daily close in a month, below 1.2700, while EUR/GBP jumped to 0.8660.

The Japanese Yen was among the worst performers, as USD/JPY broke above 144.00, approaching the 2023 highs. The outlook appears bullish, supported by higher US yields and monetary policy divergence.

USD/CAD continued to edge higher, rising to the 1.3450 area, matching the 200-day SMA. The pair is consolidating above the 20-week SMA, for the first time since May. 

NZD/USD is testing levels below 0.6030, reaching the lowest levels since early June, which may set the stage for a test of 0.6000.

AUD/USD spiked to 0.6618 after the US CPI data but then sharply reversed, falling below 0.6520. Risks are tilted to the downside, and a test of 0.6500 seems likely.

Metals remain under pressure after failing to sustain an upward move. Gold initially jumped to $1,930 after the US data but ended up falling to $1,910, marking the fourth consecutive daily decline and the lowest close in a month. Silver finished flat around $22.70 and continues to show weakness after pulling back from $23.00.