Pound Soars, USD Gains Further

A surprise rise in UK inflation put a BOE hike back on the table while the US dollar bounce continued. The pound was the top performer while the yen lagged. Japanese PPI and the quarter business conditions index is due up next.

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The pound showed what a sliver of inflation can do after CPI rose 3.9% y/y compared to 3.7% expected on Tuesday. Cable climbed 120 pips and GBP/JPY rose nearly 250 pips. The rally in GBP/USD broke the August high and 1.3298 was the best in nearly a year. Wednesday’s UK jobs figures could help sway Thursday’s MPC voting from 2 to 3 hawkish dissenters.

The BOC showed what can happen to a currency when a central bank changes gears and the suspicion in markets is that Carney may finally get to hike rates. The BoE’s OIS market is now pricing a 35% chance of a November hike, climbing to 44% in December.

In economic news, US JOLTS job openings were at 6.17m compared to 6.00m expected in another sliver of good economic news for the United States. The main drivers of dollar strength continued to be relief about Irma and momentum.

USD/JPY is now flat on the month after a brutal start, but more broadly it’s a mixed picture. The dollar is struggling to hold gains against the euro and cable begins to gain momentum.

Looking ahead, the Asia-Pacific calendar sports a few highlights including Japanese PPI for August. It’s expected to rise a healthy 3.0% when it’s released at 2350 GMT. In a release at the same time, the MoF’s survey of large manufacturers for Q3 is forecast at +5.0 from -2.9.

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