The dollar stays stable and the pound falls. Will the U.K. government put a stop to tax cuts?
The U.S. dollar was stable in early European trading on Friday after another hot U.S. inflation number came out. Sterling, on the other hand, gave up some of its overnight gains as rumours circulated that the UK government was about to abandon plans for large tax cuts that could not be paid for.
At 3:10 ET (07:10 GMT), the Dollar Index, which compares the dollar to a basket of six other currencies, went up 0.1% to 112.350, putting it back on track after falling 0.5% in the previous session.
Investors seem to have ignored data that showed U.S. consumer prices went up more than expected in September. This is because sharp gains on global stock markets have made people more willing to take risks.
The U.S. dollar has been going up and up as rising inflation, fears of a recession, and worries about central bank policies around the world have made people less willing to take risks.
Citigroup says that the dollar is likely to keep going up until the current slowdown in the world economy is over and growth starts to pick up again.
Analysts at the bank said, “We think a top in the dollar needs a bottom in global growth.” “In order to change the direction of the dollar, the story needs to change.”
GBP/USD fell 0.2% to 1.1303 after gaining sharply overnight on reports that the U.K. government might change its mind about its plans for big tax hikes that won’t be paid for.
Finance Minister Kwasi Kwarteng cut short his trip to Washington on Thursday night after hearing that Prime Minister Liz Truss is thinking about reversing more of her government’s controversial “mini-budget.”
Plans to borrow money to pay for a huge tax hike hurt the U.K. bond market and the value of the pound. The Bank of England stepped in to calm things down by announcing an emergency bond-buying programme that will end later Friday.
EUR/USD stayed the same at 0.9773 after Germany’s wholesale price index rose 19.9% year-over-year and 1.6% month-over-month in September. This was mostly due to higher costs for raw materials and intermediate products.
This comes after data from Thursday showed that the country’s consumer inflation rose 10.9% year-over-year when compared to other European countries. This made the European Central Bank feel more pressure to keep raising interest rates.
USD/JPY went up 0.2% to 147.47, which is just below the 32-year high of 147.66 that was seen in the previous session. This means that investors are still on the lookout for intervention, as Japanese officials are likely to support the weak currency.
Both AUD/USD and NZD/USD went up because people were more willing to take risks. AUD/USD went up 0.5% to 0.6331 and NZD/USD went up 0.7% to 0.5669.
USD/CNY went up 0.1% to 7.1773 after data showed that Chinese CPI inflation rose to its highest level since April 2020. However, PPI inflation fell in September, which shows that China’s manufacturing sector is still weak this year because of COVID.
