Dollar Pauses Before Inflation Test; Hawkish BoE Underpins Sterling
The dollar held firm in Asia on Tuesday after a bumpy few days, as traders waited for US October inflation data that could push it higher if it strengthens rate-hike bets, Reuters reported. On Monday, a drop in oil and gains in stocks drew investors back into riskier assets and knocked the greenback lower.
Dollar: CPI Decides December
Economists polled by Reuters expect the October consumer price index, due at 8:30 a.m. ET, to show annual inflation rising to 3.9% from 3.7% in September, with core inflation, which leaves out food and energy, at 2.8%. Friday’s jobs report showed payrolls up 165,000, far above the 65,000 expected. Markets are pricing an 85% chance of a December Fed hike, Reuters reported.
“You can only put a little bit more (in the price) in December, but the price for meetings into the future could go higher,” said Westpac strategist Imre Speizer. In my view, that means a hot CPI print would matter more for rate bets beyond December. Producer prices follow on Friday.
Euro: Inflation Climbs to 4%
The euro rose 0.7% on Monday to $1.1220, reversing Friday’s drop after the strong US jobs data and returning to the middle of its one-month range, Reuters said. Euro zone inflation rose to 4% in October from 3.8%, its highest since September 2023 and double the ECB’s 2% target, Eurostat’s flash estimate showed. Energy prices rose 20.8% from a year earlier, while core inflation held steady at 2.5%, which suggests the jump is driven mainly by energy rather than broad price pressure.
The race to lead the ECB is also taking shape. The Netherlands has nominated former Dutch central bank chief Klaas Knot as a candidate to succeed Christine Lagarde as ECB president.
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See all EUR/USD forecastsPound: BoE Signals More to Come
Sterling has drawn support since the Bank of England raised rates for the first time in three years last week, Reuters said. The Monetary Policy Committee voted 8-1 to lift Bank Rate to 4%, with Catherine Mann backing a half-point increase to 4.25%. “Without news which softens the risks to inflationary pressures, I can see the argument for a further increase in rates,” Governor Andrew Bailey wrote in the minutes. The BoE expects inflation to rise to around 5% by the middle of next year, citing high energy prices.
Even so, the pound sits in the middle of a range it has held for almost a year and a half, Reuters noted. In my view, a hike with more signalled would normally help sterling, but US hike bets are rising too, so GBP/USD likely needs a soft US CPI print to break higher. Third-quarter GDP data are due on Thursday.
US Dollar Index Technical Analysis: DXY Slips Below 101.73 as 101.49 Comes Into Focus
The US Dollar Index is trading near 101.56 on the 2-hour chart. DXY was turned back last week at a falling trendline, a line connecting lower highs since mid-October. It has now dropped below 101.73, the pivot point, a level calculated from the previous period’s high, low and close that traders use to judge direction. It is also below both moving averages, which track average prices over time.
Support, where buyers may step in, is 101.49, then 101.29. Resistance, where sellers may return, is 101.73, then 101.99. RSI, a 0 to 100 gauge of buying and selling strength, is near 37 and below its signal line, a slower average of RSI, so sellers have the edge. My bias is a slight bearish lean while DXY stays below 101.73. A close below 101.49 would open 101.29.
EUR/USD Technical Analysis: Euro Climbs Above 1.1216 as 1.1268 Comes Into Focus
EUR/USD is trading near 1.1239 on the 2-hour chart. The pair bounced from 1.1131 last week and now holds above 1.1216, its pivot point, and above both moving averages.
Resistance is 1.1268, then 1.1286. Support is 1.1216, then 1.1183. RSI is near 70, close to overbought, meaning prices rose fast, so a pullback toward 1.1216 is possible before the next push. The euro keeps a slight bullish lean while it holds that level. A close above 1.1268 would open 1.1286, while a drop below 1.1216 would point to 1.1183.
GBP/USD Technical Analysis: Pound Holds 1.3429 as 1.3464 Comes Into Focus
GBP/USD is trading near 1.3451 on the 2-hour chart. The pound bounced from 1.3342 last week, right at a rising trendline from late October, and has since climbed above its 1.3429 pivot and both moving averages.
Resistance is 1.3464, then 1.3502. Support is 1.3429, then 1.3398. RSI is near 63 and above its signal line, so buyers have the edge. The pound keeps a slight bullish lean while it holds 1.3429, and a close above 1.3464 would open 1.3502.