Traders had been biding their time into the release of the latest US inflation data and the numbers didn’t disappoint, regarding outsized price action and volatility around the publication.

The dollar went into freefall, dropping 1.5% yesterday, after all-round softer than expected US inflation data.

All four of the main measures missed estimates to the downside by one tenth.

The annual and month-on-month headline prints came in at 3.2% and 0%, while similar core figures fell to 4.0% and 0.2%.

Treasury yields turned sharply lower effectively dragging the dollar down with it as the Fed’s policy tightening cycle is now seen as finished.

In fact, the repricing of interest rate expectations turned on its head with the start of easing now seen in June and 50bps of cuts by July.

The greenback saw its biggest declines against the euro and the pound since November 2022.

The dollar index sliced through support levels and is now sitting on the 100-day simple moving average at 104.21. The 200-day simple moving average resides at 103.62.

Focus today will be on US retail sales after the strong data seen in September, as economists forecast a 0.3% m/m decline.

Do we get another downside surprise in this data?

The US consumer has been a bedrock of the resilience in the economy so a weak report could add more fuel to the soft growth theme that is expected over the next few months in the world’s biggest and most important economy.

GBP gives back some gains after soft CPI

It’s been a busy week for UK data with mixed jobs data yesterday and weaker-than-expected inflation figures released this morning.

The Bank of England focuses on wage growth which showed mild signs of slowing, though it remains elevated.

But CPI dropped sharply today with services inflation, another key gauge for policymakers, noticeably missing estimates as well.

This is very encouraging news for the Bank of England and means their rate hike cycle is probably done too.

Markets now price in the first rate cut in June and there is a risk of the UK economy deteriorating further which could drag on GBP.

The 200-day simple moving average could support GBP/USD at 1.2440. A major Fib level (38.2%) of the July drop is at 1.2459 and the midpoint above at 1.2589.

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