US Dollar strengthens following higher than expected inflation data

The US had another largely positive day yesterday, following inflation data from the Producers’ Price Index showing a much higher than expected figure, giving investors more evidence of a strengthening economy. US Federal Reserve Chair Janet Yellen spoke again in front of lawmakers, and the US dollar rose against many currencies as she outlined the central bank’s plan to reduce the size of its balance sheet. Furthermore, following her comments, speculation continues to mount that we could see interest rates rise by September 2015.

Last night, the Beige book – which analyses the state of the local economies from all 12 Federal Reserve Banks – indicated that all 12 districts are experiencing economic expansion, a promising sign for the US economy as a whole.

Looking to today, there are a number of data pieces that will interest investors. This starts with the building permits figures, which will be released at the same time as the unemployment claims data. Any data from the labour market will be of particular interest, given the emphasis Ms Yellen placed on the relationship between an improving labour market and a possible interest rate hike during her testimony on Tuesday. The manufacturing index from the Philadelphia Federal Reserve will follow this, and has caused a significant reaction in the market in the past.