Stocks rise, dollar falls before US inflation data

The dollar fell from its recent highs against the euro, the pound and the yen
London (AFP) – Stock markets rose slightly and the dollar extended its recent losses on Tuesday with all eyes on the latest inflation figures in the United States.

While traders expect Tuesday’s data to show a slowing pace of price hikes in the world’s largest economy, they still expect the Federal Reserve to continue to raise US interest rates by significant amounts in the coming months.

The dollar, which has hit multi-year highs against the yen and pound in recent weeks, is reversing its trend after investors priced in a further tightening of US borrowing costs.
“The past few days have seen a marked improvement in market sentiment,” said Craig Erlam, chief market analyst at Oanda Trading Group.

“It is not always easy to determine what is driving such a shift, but the fact that it happened in the days before the US inflation report is certainly interesting.”

Erlam said lower inflation could “lead to a broader rebound in risk in the markets.”
“It may not be enough to tip the Fed’s balance in favor of a modest 50 basis point rate

increase next week, but it may slow the pace of tightening after that.”
Analysts expect inflation to slow to 8 percent, driven mostly by lower gasoline prices. The US inflation rate hit a 40-year high in June, touching 9.1 percent.

Markets are largely pricing in a 75 basis point rate hike by the Federal Reserve at its next meeting.
This is after the US central bank has already raised this amount in a row, while Federal Reserve Chairman Jerome Powell indicated that the increases will continue until inflation is tamed.

The European Central Bank last week raised its key interest rate by 75 basis points, a record amount for the eurozone.

Inflation has risen worldwide this year due to rising energy and food bills.

This has resulted in large part from supply constraints after economies reopened from pandemic lockdowns and in the wake of the Russian invasion of Ukraine.

– Key numbers around 1100 GMT –
London – FTSE 100: up 0.4 percent at 7,499.19 points
Frankfurt – Dax: up 0.7 per cent to 13,492.77
Paris – CAC 40: up 0.6 percent to 6371.48
EURO STOXX 50: up 0.7 percent to 3,671.60
TOKYO – Nikkei 225 index: up 0.3 percent to 28614.63 (close)
Hong Kong – Hang Seng Index: down 0.2 percent at 19,326.86 (close)
Shanghai – Composite: up 0.1 per cent at 3,263.80 (close)
New York – Dow Jones: up 0.7 percent at 32,381.34 (close)
EUR/USD: up at $1.0178 from $1.0120
Pound/dollar: rose at $1.1729 from $1.1680
Euro / Pound: up to 86.77 pence from 86.64 pence
Dollar / yen: down at 142.11 yen from 142.82 yen
Brent North Sea crude: up 1.2 percent to $95.17 a barrel
West Texas Intermediate: up 1.2% at $88.83 a barrel