FX.co ★ Inflationary dollar turn

Today, the inflation data from the U.S. should remove all questions about the Fed's refinancing rate increase in December which could lead to a long process of strengthening the dollar.

Yesterday, the single European currency almost completely fulfilled all the forecasts and became cheaper against the background of statistics. At first, the euro did well due to data on industrial production, whose growth rates accelerated from 3.6% to 3.8% instead of slowing down. However, it went down against the background of the acceleration of the producer price growth rates in the U.S. from 2.4% to 2.6%. Additional support for the dollar was provided by data on the number of applications for unemployment benefits. The number of primary applications decreased from 258,000 to 243,000, and repeated from 1,921,000 to 1,889,000.

Yet, the pound was worked up and it's all about the negotiations on the UK's withdrawal from the E.U. In the beginning, the pound sharply went down after the EU representatives said that the negotiations had reached a dead end. Later on, the pound not only played its losses but moved higher when it was reported that the Britain could be given a transition period for two years.

Today, everything depends only on U.S. statistics, which should pretty much strengthen the dollar. It is expected that the inflation in the U.S. will accelerate from 1.9% to 2.3%, and if these forecasts are justified, investors will have no doubt that in December the Fed will raise the refinancing rate to 1.5%. This will launch a long process of strengthening the dollar. But at the same time, the slowdown in the growth rate of retail sales is forecasted from 3.2% to 3.1%. Nevertheless, the expected growth of inflation completely hampers the decline of the consumer activity.

The EUR/USD pair will fall to 1.1780 with the next benchmark at 1.1745.

The GBP/USD pair will decline towards 1.3210, and then to 1.3165.