4-month highs for EUR/USD

Daily Currency Update

Data early Tuesday morning showed that the UK unemployment rate edged higher to 3.6% in September, while average earnings rose 5.7% on the month, climbing at the fastest pace in more than 20 years. US data followed early afternoon with the PPI report offering further support to the notion that the Fed will be in a position to cut rates if, as feared, the US enters into a recession in 2023. PPI was surprised on the downside with core CPI rising only 0.3% month-on-month last week, rather than the 0.5% expected. After aggressive rate hikes over the past months, inflationary pressure may finally be abating in the US. GBP/USD had made a push for 1.2000 before the US release but fell following the announcement. News elsewhere would have supported the US dollar as investors tend to buy the US dollar in times of market uncertainty, as a fatal missile strike to a village in Poland raised political tensions in the NATO region. Although eyes have turned to Russia after its recent missile barrage of Ukraine, Western leaders have urged caution as doubt exists about where the Polish missile was fired from. Continuing with the political theme for the US dollar, the Republican party is now very close to securing a majority in the US House of Representatives, a move that would likely result in two years of gridlock in Washington with Democrats retaining control of the Senate. GBP/USD is off the highs of yesterday at 1.1870 and EUR/USD opens closer to the highs at 1.0415.

Earlier this morning, inflation data out of the UK showed that consumer prices rose 11.1% in October from a year earlier, a 41-year high. This suggests that the Bank of England will have to continue hiking interest rates ahead of Chancellor Jeremy Hunt revealing measures to fill the large gap in public finances, likely including tax rises and spending cuts. Sterling could be in for a rocky ride into the second half of this week.