Market Analysis: The US Dollar Rises on Strong Data

Investors are assessing the August report on consumer prices in the US, which was published the day before and caused a muted market reaction. Thus, the index increased by 0.6% over the month after 0.2% in the previous period, which resulted in an increase in the annual indicator to 3.7% from 3.2% previously. The benchmark index, which US Federal Reserve officials rely on when setting monetary policy, adjusted to 4.3% from 4.7% previously, the lowest reading since October 2021, when it first reached 4.0%. Against this background, experts’ confidence in maintaining the interest rate at 5.25–5.50% at the US Federal Reserve meeting on September 19-20 even increased and, according to the FedWatch Tool indicator from the Chicago Mercantile Exchange (CME), now amounts to more than 97.0 %.

EUR/USD

The European currency fell against the US dollar on Thursday as the euro came under pressure after the European Central Bank signaled an end to its rate hike cycle. The ECB raised interest rates at its 10th straight meeting on Thursday to combat persistent inflation but signaled it was likely to ease policy. The central bank of the 20 countries that use the euro raised its deposit rate to 4% from 3.75%, bringing it to a record high level. Markets and economists expect policy tightening to be the ECB's final move and now expect a long pause followed by rate cuts in the second half of next year. The euro fell 0.89% to 1.0635 after falling to 1.0629, its weakest since March 17 and on pace for its biggest one-day percentage drop since July 27. Immediate resistance can be seen at 1.0711, a breakout to the upside could trigger a rally to 1.0740. On the downside, immediate support is seen at 1.0630, a break below could take the pair towards 1.0594.

Over the past week, a price range has formed with boundaries of $1.0685 and $1.0748. Now the price has moved to the upper half of the range and may continue to rise.

GBP/USD

Sterling fell against the US dollar on Thursday as the British currency extended its decline following weak UK economic data. An industry survey published earlier on Thursday showed UK house prices fell the most in 14 years in August as demand weakened amid higher mortgage costs and economic uncertainty. This followed data on Wednesday showing the economy contracted 0.5% in July. Sterling traded at 1.2405, 0.68% below expectations, a day after falling to 1.2400, a three-month low, and was poised for its biggest one-day percentage decline since August 24. Immediate resistance can be seen at 1.2459, a break higher could trigger a move towards 1.2528. On the downside, immediate support can be seen at 1.2379, the breakout could take the pair to 1.2313.

At the lows of the week, a new downward channel has formed. Now the price has moved away from the lower boundary and may continue to rise.

USD/JPY

The US dollar strengthened against the Japanese yen on Thursday. Better-than-expected US retail sales and producer prices lifted the dollar. Weekly initial jobless claims rose to 220,000, but were below the 225,000 forecast. Rising gasoline prices also weighed on the latest inflation data, with the final demand producer price index rising 0.7% last month, beating estimates at 0.4%. While markets are pricing in the Fed to keep rates unchanged at its next meeting, the likelihood of a rate hike in November is 39%, according to CME's FedWatch Tool. The dollar index was last up 0.64% at 105.41, just off the 105.43 level hit earlier in the day. Strong resistance can be seen at 147.81, a break higher could trigger a rise towards 148.43. On the upside, immediate support is seen at 147.23, a break below could take the pair towards 146.40.

At the highs of the week, a new ascending channel has formed. Now the price is in the middle of the channel and may continue to move towards the lower border.