FX round-up: Off-target inflation and firmer dollar put pressure on cable

The poor inflation figures throws further doubt on any rate rises in the UK for at least the next quarter.

Opening the UK trading session at 1.2964, GBP/USD saw massive selling pressure to take the pair to 1.2876 by midday. Core retail (sales excluding automobiles) and retail sales figures for the US came in at 0.5% and 0.6%, respectively, stoking dollar strength and adding fuel to cable shorts, taking the pair to 1.2856 by the London close, down 0.81%

In addition to the positive retail sales figures Stateside, Tuesday also saw the release of the Empire State manufacturing index (a survey of approximately 200 manufacturers in New York state asking to rate the relative level of general business conditions) which also beat expectations to print at 25.2.

Neil Wilson at ETX Capital said, "This was a strong performance from the US retail sector. Sales up 0.6% from June was the best gain since December and well ahead of expectations. The beat pushed the dollar higher across the board and that’s left the pound tasting the dirt a bit today after the earlier UK CPI inflation figure missed and we saw no positive uplift from the government’s more positive Brexit stance."

Against the euro, sterling did not fare much better, trading lower on the day to 1.0958.

As might be expected, with positive US retail sales figures, the greenback surged against the euro with EUR/USD opening at 1.1778 on Tuesday morning, falling to a day low of 1.1688 just after midday to finally end the UK session 0.38% lower to 1.1735. Danske Bank said in a note, "In the Eurozone all eyes will be on the ECB and the possible extension of the QE programme into 2018," adding "We expect a QE announcement at the October ECB meeting. But the risk is once again asymmetric. The ECB might put more weight on the better economic data and argue that an extension of the QE programme is unnecessary."

Safe haven currencies the Japanese yen and Swiss franc suffered further losses on Tuesday as tensions between the US and North Korea seemed to simmer down further after Chinese Foreign Ministry spokeswoman Hua Chunying urged both sides to help "put out the flames" and not add fuel to the fire.

Overnight, moves in USD/JPY saw the pair rally from 109.62 to 110.20 before traders bid the pair up in the European session to a day high of 110.84 by 1400 BST to finally trade 0.75% higher on the day to 110.45.

USD/CHF followed in typical safe haven fashion to trade 0.04% higher on the day to 0.9723.