Central bank meetings dominated today’s European session, while US CPI was the main data in focus. The pound soared to a fresh one-year high against the dollar after the Bank of England signalled rates could go up within months. The US dollar also shined as the greenback was lifted by stronger-than-expected inflation data. In contrast, the Swiss franc ended up as one of the worst performers after the Swiss National Bank slightly altered its view on the Swissie’s value.
The pound returned to the top of the performance league for the second time this week as the British currency jumped more than 1% after the Bank of England strongly hinted at a rate hike in the near future. At the end of its two-day monetary policy meeting, the BoE kept policy unchanged as expected, with two MPC members dissenting to vote for a rate hike as anticipated. However, in the meeting minutes published immediately after the announcement, the bank said a majority of MPC members thought "some withdrawal of monetary stimulus is likely to be appropriate over the coming months" if underlying inflationary pressures continue to rise.
Sterling powered ahead to fresh highs against both the dollar and the euro, hitting $1.3371 and 0.8876 pounds to the euro. It was also up sharply against the yen, reaching a nine-month high of 148.12.
Earlier in the session, the SNB kept its key rates unchanged as expected but toned down its verbal warning of the exchange rate. In its statement, the bank said the franc remains "highly valued", slightly less strong language to the "significantly overvalued" term used in previous meetings. Pressure on the franc has eased substantially following the euro’s 7.5% appreciation against the Swiss currency this year. However, the SNB reiterated that it will remain active in the forex markets as necessary.
The Swissie weakened after the SNB’s decision, with dollar/franc climbing to 0.9660 and euro/franc firming to 1.1480 in late trading.
The euro was mostly swayed by the movements of its peers in the absence of any major Eurozone data today. There was little reaction to remarks by ECB board member, Bostjan Jazbec, who said the central bank needs more data before deciding on reducing the size of its asset purchase program, but added that a decision was inevitable. The single currency recovered from a two-week low of $1.1836 touched earlier in the day, to rise to around $1.1880 in late session.
Meanwhile, the dollar was boosted after US inflation rose by more than expected in August. Annual CPI beat estimates of 1.8% to rise to a three-month high of 1.9%, up from 1.7% in July. Prices were driven higher by a jump in gasoline prices and housing costs. The core rate, which excludes volatile food and energy prices, was unchanged at 1.7% in August, though this was above forecasts of 1.6%.
Other data out of the US today included the weekly jobless claims. Initial claims for unemployment benefits rose by 284k last week, an improvement on the prior week’s 298k and lower than the expectations of 300k.
The greenback surged to a more than one-month high of 111.02 against the yen, before retreating to around 110.70 at the US open. The dollar index was slightly down however at 92.30, weighed by the stronger pound. The US currency appeared to backtrack as some analysts said Hurricane Harvey may have skewed the CPI numbers at the end of August, while reports that North Korea may be preparing to launch another missile test also unsettled some traders.
The Canadian dollar was unable to benefit from better-than-expected house price data out of Canada today. The loonie was last trading 0.25% down on the day at C$1.2200 to the greenback.
In commodities, base metals continued to slide, with copper prices falling to a one-month low of $2.9180 per tonne. But crude oil extended yesterday’s gains, following the IEA’s upbeat assessment of the oil market. WTI crude was last up 1.2% at $49.90, while Brent crude was 0.8% higher at $55.61 per barrel.
