Forex Today: US Dollar holds firm following US inflation figures

Markets in focus on Wednesday, 11 November:

A gain of more than 0.5% in the USD Index on Tuesday marked a recovery for the US Dollar (USD) against its peers after Monday's decline. By early Wednesday, the index remains well above 102.30. Meanwhile, the benchmark 10-year US Treasury bond yield is up more than 2% on the day, trading close to 5%. With no high-impact macroeconomic releases on the calendar, investors can keep their attention on developments in bond and equity markets.

October's Consumer Price Index (CPI) rose 0.4%, while core CPI increased 0.3%, according to figures released on Tuesday by the US Bureau of Labor Statistics (BLS). Both readings exceeded market forecasts, lending support to the USD. Wall Street's decline after the inflation release provided a further boost to the currency. The probability of a December interest rate rise by the Federal Reserve (Fed), as shown by the CME FedWatch Tool, increased to above 85% from about 80% before the CPI report.

US inflation to remain uncomfortably high for years, Commerzbank warns

US price pressures are still uncomfortably high, Commerzbank economists caution, pointing out that “prices are still rising too quickly, even though the increase was somewhat smaller than in September.” In their assessment, “the rapid decline in inflation that the Fed had hoped for has yet to materialize,” while a “strong economy and the ongoing conflict in the Middle East suggest that inflation is unlikely to ease in the near term.” Commerzbank therefore maintains that “inflation is not expected to decline until 2027, and even then it is likely to remain above a level consistent with price stability.”

Responding to the inflation figures, Chicago Federal Reserve President Austan Goolsbee described CPI as "borderline disturbing". He added that inflation becoming embedded in expectations would be a "major concern".

Gold held above $4,000 despite heavy selling on Tuesday, when it shed more than 2.5%. A corrective rebound early on Wednesday has taken the precious metal to around $4,060.

EUR/USD surrendered much of Monday's advance as broad-based USD strength drove a decline of more than 0.5% on Tuesday. Trading remains relatively subdued during the European morning, with the pair hovering around 1.1150. Wednesday's schedule includes speeches from several European Central Bank (ECB) policymakers, among them ECB President Christine Lagarde.

GBP/USD has steadied above 1.3300 midweek after ending Tuesday about 0.75% lower. Speaking on Tuesday, Bank of England (BoE) Deputy Governor Clare Lombardelli declined to rule out a December rate rise, although she said she did not yet have sufficient information to confirm it. Third-quarter Gross Domestic Product (GDP) figures are due from the UK's Office for National Statistics on Thursday.

USD/JPY advanced more than 0.5% on Tuesday as upward momentum strengthened. Early Wednesday has brought further gains towards 159.00, leaving the pair at its highest in nearly a month.