Dollar slides on US inflation data

The dollar has weakened following the release of inflation data in the US, shedding the best part of 2.5 cents and 3.5 cents against the euro and sterling respectively to trade north of $1.02 and above $1.17 this morning. This in turns leaves the pound trading about 1p firmer against the single currency at just over 87p

There was a broad-based decline in government bond yields on the back of the inflation numbers, with US 10-year yields falling by 30bps to 3.80% and equivalent UK and German yields around 15bps and 10bps lower respectively at 3.30% and 2.05%

Equity markets also rallied very strongly yesterday – the S&P 500 in the US rose by almost 5% and stocks in Europe added 3% on the day

The annual rates of headline and core inflation in US both came in softer in October than the consensus expected. The headline rate fell to 7.7% last month from 8.2% in September, and is now down almost 1.5 percentage points from its recent high in June, while the core rate dipped to 6.3% from September’s 6.6%

Inflation in the US still remains elevated though, and the Fed is still likely to raise interest rates further, but the latest reading makes it more likely that it will do so in smaller sized steps having hiked by 75bps at each of its last four meetings

The UK economy contracted in the third quarter according to data published earlier this morning. GDP fell by 0.2% from Q2 (though it was still 2.4% higher than in Q3 2021), with declines in consumer spending and business investment partially offset by an increase in exports

In Ireland, the annual rate of consumer price inflation re-accelerated in October, coming in at 9.2%, largely on the back of higher electricity and gas prices

Data due today includes consumer confidence in the US, while the European Commission publishes its latest economic forecasts