Forex Today: US Dollar shows resilience after US inflation data

Here is what you need to know on Wednesday, November 11:

Following the bearish action seen on Monday, the US Dollar (USD) gathered strength against its rivals on Tuesday, with the USD Index rising more than 0.5% on the day. Early Wednesday, the USD Index holds comfortably above 102.30, while the benchmark 10-year US Treasury bond yield gains more than 2% on the day, holding near 5%. The economic calendar will not offer any high-impact macroeconomic data releases, allowing investors to remain focused on bond and stock markets.

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US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Swiss Franc.

	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%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

The data published by the US Bureau of Labor Statistics (BLS) showed on Tuesday that the Consumer Price Index (CPI) and the core CPI, rose 0.4% and 0.3%, respectively, in October. Both of these prints came in above market expectations and boosted the USD. Additionally, the bearish action seen in Wall Street following the inflation report further supported the USD. The CME FedWatch Tool's probability of a Federal Reserve (Fed) rate hike in December climbed abobe 85% from about 80% ahead of the CPI release.

Commerzbank sees US inflation staying uncomfortably high for years

Economists at Commerzbank warn that US price pressures remain uncomfortably elevated, stressing that “prices are still rising too quickly, even though the increase was somewhat smaller than in September.” They note that “the rapid decline in inflation that the Fed had hoped for has yet to materialize,” as a “strong economy and the ongoing conflict in the Middle East suggest that inflation is unlikely to ease in the near term.” Against this backdrop, Commerzbank argues that “inflation is not expected to decline until 2027, and even then it is likely to remain above a level consistent with price stability.”

Commenting on infation readings, Chicago Federal Reserve President Austan Goolsbee said that “CPI was "borderline disturbing" and added that it will be a "major concern" if inflation gets built into expectations.

Gold came under heavy selling pressure on Tuesday and lost more than 2.5% on the day but managed to hold above $4,000. Early Wednesday, the precious metal corrects higher and trades at around $4,060.

EUR/USD turned south on broad USD strength and fell more than 0.5% on Tuesday, erasing a large portion of Monday's gains in the process. The pair stays relatively quiet and fluctuates at around 1.1150 in the European morning. Several European Central Bank (ECB) policymakers, including ECB President Christine Lagarde, are scheduled to deliver speeches on Wednesday.

GBP/USD closed with a daily loss of about 0.75% on Tuesday before stabilizing above 1.3300 midweek. Bank of England (BoE) Deputy Governor Clare Lombardelli said on Tuesday that she wouldn't rule out a rate hike in December but added that she doesn't have enough information to confirm it just yet. On Thursday, the UK's Office for National Statistics will publish third-quarter Gross Domestic Product (GDP) data.

USD/JPY gathered bullish momentum and rose more than 0.5% on Tuesday. The pair continues to stretch higher toward 159.00 early Wednesday and trades at its highest level in nearly a month.

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.