Sterling held a firm tone ahead of Thursday’s New York open with highs against the dollar. The currency was underpinned by expectations of capital inflows with the FTSE 100 index posting a fresh 2-year high while overall global risk appetite held firm. There were no comments on monetary policy from Bank of England Governor Bailey with markets still expecting gradual interest rate increases.
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Narrow ranges prevailed ahead of Thursday’s New York open with the Euro holding a firm tone as the US currency tended to drift lower against the Euro and commodity currencies. ECB chief economist Lane stated that inflation should return to the trend without the need for significant monetary policy changes.
The Euro hit strong selling and higher US yields eventually triggered further strong dollar buying while ECB President Lagarde stated that a rate hike would not solve the current problems. The dollar posted further net gains and the Euro retreated on Friday as commodity currencies also dipped sharply.
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US consumer prices increased 0.6% for January, above expectations of 0.5% with the year-on-year rate strengthening to a 40-year high of 7.5% from 7.0% and above consensus forecasts of 7.3%. Energy prices increased 27.0% over the year with a 40.0% increase for gasoline prices while food prices increased 7.0% over the year. Underlying prices also increased 0.6% on the month with the annual rate at a 39-year high of 6.0% from 5.5% and slightly above expectations of 5.9%. There was a further 1.5% increase in used car prices for the month to give a 40.5% annual increase while apparel prices increased 5.3% over the year.
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