After the release of US CPI data, the US Dollar inched higher in the hopes of more rate hikes to come! But in the United Kingdom, the Sterling fell after the release of the UK CPI data!
If we look at the US Dollar index, it reveals that the USD gained 0.3% against 6 other currencies that are part of the index. So collectively, the USD has gained ground against all the other major currencies.
The CPI reading from the USA was 6.4% y/y in January, while the economists were expecting a reading of 6.2% only! Similarly, the core inflation was 5.6% in January, while the economists were expecting a reading of 5.5%.
Inflation Is Difficult To Tame
Both of these readings suggest that it isn't as easy as it seems to tame inflation in the USA! This comes at a time when the USA has been introducing new rate hikes at every meeting for the last several months!
According to John Williams, who is the president of the NY Fed, inflation is still too high, and more rate hikes are needed to rectify that!
He also made it clear that their work is still far from done. He also said that the Fed would stay on the current course until the inflation is brought under control.
And if we look at the GBP/USD, it was trading around 1.2094 after losing 0.6% against the USD. This development occurred after January's inflation report was released. As per the report, the inflation in the UK is at 10.1% y/y, while it was around 10.5% in December.
So as far as the UK is concerned, the speed at which the inflation is going down is a lot faster than in the USA. And that's the main reason why the GBP dropped after the release of the UK inflation data!
According to the Bank of England, the inflation's target is 2% which tells us there is still a long way to go!