Forex Today: After US inflation data, US Dollar holds firm

What should markets watch on Wednesday, 11 November?

The US Dollar (USD) regained ground against its peers on Tuesday after Monday's decline, lifting the USD Index by more than 0.5% for the session. The index remains comfortably above 102.30 early Wednesday, while 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 bond and equity markets.

How Has The US Dollar Performed This Week?

The US Dollar recorded its strongest performance against the Swiss Franc this week. The table below sets out the percentage changes in the US Dollar (USD) against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.13%	0.14%	0.32%	0.66%	-0.08%	-0.67%	1.02%
EUR	0.13%		0.28%	0.44%	0.80%	0.15%	-0.53%	1.15%
GBP	-0.14%	-0.28%		0.15%	0.50%	-0.13%	-0.82%	0.87%
JPY	-0.32%	-0.44%	-0.15%		0.35%	-0.44%	-0.96%	0.66%
CAD	-0.66%	-0.80%	-0.50%	-0.35%		-0.76%	-1.35%	0.39%
AUD	0.08%	-0.15%	0.13%	0.44%	0.76%		-0.68%	0.91%
NZD	0.67%	0.53%	0.82%	0.96%	1.35%	0.68%		1.72%
CHF	-1.02%	-1.15%	-0.87%	-0.66%	-0.39%	-0.91%	-1.72%

To read the heat map of percentage changes between major currencies, select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the US Dollar on the left and following its row across to the Japanese Yen gives the percentage change for USD (base)/JPY (quote).

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Stronger-than-expected inflation figures lent support to the USD on Tuesday. According to the US Bureau of Labor Statistics (BLS), October's Consumer Price Index (CPI) rose 0.4%, while core CPI increased 0.3%, with both readings exceeding market forecasts. Wall Street's decline after the inflation release provided an additional boost to the currency. Meanwhile, the probability of a December rate hike by the Federal Reserve (Fed), as shown by the CME FedWatch Tool, moved above 85%, compared with about 80% before the CPI data.

Why does Commerzbank expect US inflation to remain uncomfortably high for years?

US price pressures remain uncomfortably elevated, warn economists at Commerzbank, who point 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.”

Chicago Federal Reserve President Austan Goolsbee described the CPI reading as "borderline disturbing" when discussing the inflation figures. He also warned that it would be a "major concern" if inflation became embedded in expectations.

Gold held above $4,000 despite intense selling on Tuesday that left it down more than 2.5% for the day. A corrective recovery early Wednesday has taken the precious metal to around $4,060.

EUR/USD gave back a substantial share of Monday's gains as broad-based USD strength drove the pair down more than 0.5% on Tuesday. Trading is relatively subdued during the European morning, with the pair hovering around 1.1150. Wednesday's schedule includes speeches by several European Central Bank (ECB) policymakers, among them ECB President Christine Lagarde.

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

USD/JPY is extending its advance towards 159.00 early Wednesday, reaching its highest level in nearly a month. The move follows Tuesday's gain of more than 0.5%, when bullish momentum picked up.

Inflation: Key Questions Answered

How is inflation measured?

The increase in the cost of a representative basket of goods and services is measured by inflation. Headline inflation is generally reported as a percentage change, both month-on-month (MoM) and year-on-year (YoY). Food and fuel are left out of core inflation because their prices are more volatile and can shift with geopolitical developments and seasonal factors. Economists concentrate on the core measure, which is also targeted by central banks under their mandate to keep inflation manageable, typically at around 2%.

What does the Consumer Price Index (CPI) measure?

Price changes across a basket of goods and services over a given period are tracked by the Consumer Price Index (CPI). The reading is generally reported as a percentage change on month-on-month (MoM) and year-on-year (YoY) bases. By excluding volatile food and fuel components, core CPI provides the measure targeted by central banks. A reading above 2% usually leads to higher interest rates, while a fall below 2% generally has the reverse effect. Higher rates support a currency, so rising inflation typically strengthens it; falling inflation tends to have the opposite effect.

Why does inflation affect foreign exchange rates?

A country's currency tends to appreciate when inflation is high and weaken when inflation is lower, even if that relationship appears counter-intuitive. Central banks normally respond to higher inflation by raising interest rates. Those higher rates draw in more global capital from investors seeking attractive returns on their money.

Why do inflation changes matter for Gold prices?

Investors historically sought Gold during periods of high inflation because it retained its value. They still often buy the metal for its safe-haven qualities during severe market turmoil, but that pattern does not hold most of the time. High inflation generally prompts central banks to raise interest rates in response. For Gold, higher rates are a headwind: they raise the opportunity cost of owning the metal rather than an interest-bearing asset or keeping money in a cash deposit account. Lower inflation, by contrast, tends to support Gold by bringing interest rates down and making the precious metal a more attractive investment alternative.