The greenback is under pressure as its long-term bull trend looks to be unravelling. Position readjustment is a key driver at present as the most crowded trade in the investment community (long dollars!) gets unwound.
Last week’s US inflation data saw the bears pounce and take the DXY through this year’s trendline support and 100-day simple moving average.
That selling has continued into this week with the index dropping close to the widely watched 200-day simple moving average just below 105. It last touched this indicator back in June last year.
The dollar’s fall from grace was only briefly halted yesterday on the Poland missile skirmish which had markets worried about a further increase in tensions in the Ukraine-Russia conflict. Confusion over who fired the missile reined, but it seems it now didn’t actually get fired from the Russians.
These geopolitical events gave notice that the greenback is prone to safe haven buying.
But again, the market had latched onto softer than expected data released earlier in the day in the form of the US producer prices figures which turned lower. It seems the dollar will be more susceptible to weaker data as the market desperately clings on to the Fed pivot idea.
We had more Fed speakers on the wires yesterday.
Various officials said that inflationary pressures are easing and that the size and pace of rate hikes is likely to slow. We had heard from the influential Brainard earlier in the week who signalled there is more work to do while also stating explicitly that the Fed will likely shift to slower rate increases soon. But the FOMC is much closer to the end of its rate hiking cycle now with slower growth likely to emerge early next year along with a further reduction in price pressures.
UK CPI hits fresh 40-year highs
Price data out of the UK this morning showed the headline figure at 11.1% and the core at 6.5%. Both these readings were above forecast although with the UK government fixing energy prices until at least April, this could mark the peak rate. That said, economists reckon inflation won’t fall below double-digits until early next year which means the Bank of England will remain in hiking mode for the next few meetings.
There are around 60 basis points priced in for the December BoE gathering.
GBP/USD briefly toped 1.20 yesterday before pulling back below 1.19. The halfway point of the 2022 decline is at 1.205.
Major support for cable sits at 1.1649 which is the 38.2% Fib level and the 100-day simple moving average.
All eyes turn to tomorrow’s big risk event - the autumn budget – which is expected to be sterling negative and a battle between financial market credibility and political expediency.
