Europe Charges Higher but Dollar Remains Weak Post US Inflation Data

Indices across Europe are seen opening higher as positive sentiment spills over from US and Asia. Despite an early sell off on Wall Street following the higher than expected inflation figures, US indices quickly reversed the losses, closing over 1% higher.

On the FTSE the gains are broad based, with few sectors showing losses. Standout performers are the banks, a sector which out performed on Wall Street overnight, given that banks benefit in high interest rate environments. Commodity stocks are also seen driving higher thanks to the weaker dollar boosting commodities; gold is seen adding to it $22 jump from the previous session, hitting fresh three-week highs. Meanwhile crude oil has also staged a rebound, pulling itself off lows of $58.20 in the previous session to hit an overnight high of $61.55, as improved inventory data also lends support.

Dollar selloff continues

The dollar initially rallied following the release of the much-anticipated US inflation data on Wednesday, however as Wall Street staged a reversal and stocks moved higher, the dollar was sent lower, despite bond yields remaining elevated. The dollar has now dropped over 1.2% versus a basket of currencies to 88.17 in the period since the release.

EUR/USD target s$1.25, ECB speeches in focus

The unexpected weakening in the dollar has seen given EUR/USD a strong boost as it bounds back and looks to target the key psychological level of $1.25. With a light eurozone economic calendar investors will look towards ECB speakers for direction, whilst US data later in the day, in the form of jobless claims and manufacturing figures could be expected to drive direction. EUR/USD is showing a willingness to attack $1.25 which could open the door to its recent three year high of $1.2540. On the downside immediate term support can be seen around $1.2450, before losses could be extended towards $1.24.

GBP/USD above $1.40 post US CPI and Boris’s Brexit speech

GBP/USD is also capitalising on the weaker dollar as it extends its rally from the previous session. Wednesday saw the pound charge through the psychological level of $1.40, as the dollar sold off and as Brexit developments are being considered supportive, following Brexit hardliner Boris Johnson’s rather substance-less speech.

Interestingly the pound has had a rather tame reaction to three important events. The first being the more hawkish tone from the BoE, the second being higher than forecast UK inflation and the third being an inconsequential speech from Brexit hardliner Boris Johnson. The fact that these events only produced minor reaction suggests that pound traders have their attention glued elsewhere, most likely on the post Brexit Transition deal. With this in mind the, lead up to the EU Summit in March could be particularly noisy, although we expect GBP/USD to remain around $1.40 with any clear confirmation of an agreed transition pushing the pair higher.