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Poor CPI Data and Political Tensions Weigh Heavily on USD FX Rates

Over the last few days, geopolitical tensions between the US and North Korea have hit a critical point, with US warships and missile carriers moving into the region. Kim Jong Un didn’t miss a minute in demonstrating Korea’s apparent firepower; driving missiles out of base for an army parade with Jong Un and a host of high-ranking officials.

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China has been quick to voice its concern saying that the scenario could very quickly spin out of control. Especially as Jong Un was quick to say that it could begin testing its nuclear arsenal at any moment.

Wang Yi, China’s foreign minister, warns:

If they let war break out on the peninsula, they must shoulder that historical responsibility and pay the corresponding price for this.

With dark clouds looming in the area, effects have been felt on USD FX rates seeing the dollar fall against a majority of the majors which won’t have been helped by the weak CPI data which was released on Friday.

CPI and Retail Sales Data Miss Target

With month on month CPI data having reached or exceeded target in the last 5 months, USD foreign exchange rates were dealt a blow with the release of disappointing data. Monthly CPI figure was anticipated to reach a 0.0% flat reading, however, data missed the target showing a decline to -0.3%.

The data potentially fired a warning about raising interest rates too quickly, with inflationary figures being a key indicator. Many saw this month’s CPI data as a mere bump in the road with many feeling very confident in the US’s economic strength.

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Following the CPI data was the release of retails sales figures which also disappointed, showing a softening in spending appetite. The data missed the anticipated level of 0.1% and dipping into negative territory -0.2%

EUR/USD (regardless of the French Election)

Many had been unsure of the Euro’s support levels with the upcoming French elections and the potential of Marine Le Pen playing a part in the final round of presidential nominations, however, with a clearer more conventional candidates in Jean-Luc Melenchalon and Emmanuel Macron now coming to the forefront and gaining popularity, markets seem less concerned, however, many are quick to admit that the race is extremely hard to call.

With these factors in mind EUR/USD foreign exchange rates remained fairly range bound trading at around 1.0606 and 1.063 before the close of Friday’s US trading hours.

GBP/USD Upturn

GBP had enjoyed a much greater level of success following Trump’s admission in the week that he would strive for weaker USD FX rates. And it would appear he has his request granted.

The events in the Korean peninsula weighed heavily against the dollar and unexpected CPI figures and disappointing will not have helped the dollar’s plight. GBP closed on Friday at around 1.2529 mark.

Next week, the USD dollar will look towards unemployment claims and the Philadelphia FED manufacturing index for support. Two areas where it, in recent months, has performed strongly.

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