Dollar surges on the back of US CPI data

A rally in Vodafone shares has put the FTSE 100 on the front foot this afternoon, up 30 points as we head towards the close.

London
Source: Bloomberg

Vodafone pushes FTSE up

Markets in other parts of the world are struggling to make much headway this afternoon, but in London Vodafone’s rally rumbles on, adding around 12 points to the index’s gain for the day. Vodafone shareholders tend to be a cautious bunch, but will undoubtedly be pleased to have seen their investment grow by 8% this week as merger reports swirl around the company. A successful outcome to any discussions would signal that big M&A is back on the agenda, after a relatively quiet period following the end of ‘tax inversion’ deals being pursued by US firms.

In Europe the never-ending Greek situation was given some more colour after the German finance minister was reported to have opined that a Greek parallel currency was a possibility. From the looks of it, this seems to be a negotiating move rather than an actual plan. A parallel currency might not lead directly to a Grexit, but it would certainly open that particular door by a few more inches.

Yellen speech due this afternoon

Any hopes of an early rally on Wall Street were nullified by a US dollar surge that took place following this afternoon’s US CPI numbers. Core prices grew by their fastest amount since January 2013, and while the 2% target is still a way off, dollar bulls will be pleased that prices are on the up. However the news comes at a bad time for stocks, given that economic data of other kinds has been almost universally poor.

If the world’s largest economy is hitting a period of rising prices but stalling growth then a lot of the earnings estimates for coming quarters will start to look rather pricey, with the consequent suggestion that a sustained correction for equities is in the offing. The day  however has been relatively quiet, given that speeches by central bankers including Janet Yellen are still to come this afternoon.

Gold could drop to $1180

Morning gains for commodities slipped away as the US dollar rallied, and as a result gold’s hold on the $1200 level is looking tenuous once again. The metal has lost its attraction to investors in recent weeks once it has broken through $1200, and with the dollar on the move higher a drop back in the direction of $1180 looks increasingly likely.

Strong US dollar expected to continue current form

There was little to stand in the way of the US dollar this afternoon following that CPI reading. As we head into next week currencies like the Aussie, euro and sterling look highly vulnerable to fresh declines. Next week focuses on confidence figures from around the globe, but the absence of heavyweight numbers from most economies means that the theme of a stronger US dollar is going to stay with us for the time being. 

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