Inflation in the UK passed the limit of 2%

For the first time in three years, consumer prices in the UK recorded a growth of 2.3% yoy, as expectations were for 2.1%. Bank of England repeatedly hinted its willingness to tolerate exceeding goal inflation is limited.

On Tuesday the pound recorded strong growth, while GBP/USD rose by 114 pips, closing at 1.2471. The British pound was also supported with the exact date of activation of Art. 50 of the Treaty of Lisbon.

The euro continued to gain against the greenback and the EUR/USD rose to 1.0806 dollars per euro.

The dollar was subject to sales also against the Japanese yen, as USD/JPY fell over 70 pips, closing at 111,777 yen per dollar. According to Japanese analysts pressure on the greenback was due to falling yields on US bonds.
   
On Tuesday, gold rose by 0.85% at the beginning of the Asian session, the precious metal was subject to sales and reached 1226.91, but subsequently rose and closed at 1244.38 dollars per ounce. The gold price is sensitive to interest rate increases, but rate hikes are not expected in the near future, which explains the bullish sentiment of investors and analysts. Since the increase in interest rates last Wednesday, gold has increased by over 45 dollars per ounce.

Important week for the dollar

On Friday, the dollar rose against the basket of major currencies against the background of increased expectations that the Fed this week will raise the interest rate.
On Friday, the USD index, which shows the relationship of the US dollar against a basket of major currencies, rose by 0.48% to 101.60. For the week the index rose by 0.75%.
The market as never is sure about raise rates for the first time in a year on Wednesday. According to various forecasts investors assess the probability of rate hike to 100%.
The dollar is growing steadily on expectations the US central bank rate hikes, the currency becomes more and more attractive to investors.

Confidence in the Fed raising rates rising

The dollar slowed the "bullish" move, but it's not in a hurry to give up the position against the main competitors. Markets played g Trump's victory and the main expectations of its new policy, which resulted in a slight pullback of the American currency. However, the advantage is on the side of the USD, which returns to the theme of the December rate hike.
Market confidence that the Fed will not stand idle at the next meeting, is growing again - the probability of increasing of borrowing costs currently exceed 80%.
In addition, markets are encouraged by the Trump's election promises, which featured an emphasis on fiscal stimulus. This implies a decrease in the need for monetary stimulus, and therefore more vigorous tightening of monetary policy of the Fed. Thus, the long-term prospects of the dollar continues to look positive, and if over the coming months the US economy will present no surprises, at the end of the year the currency will have to perform even more powerful rally.
EUR/USD, which currently is unable to rise above the mark of 1.08, remains under pressure with the prospect of testing new yearly lows near 1.07. The loss of this level will aggravate the outlook for the pair and will open the way to the area of ​​1.0640 and below.

Dollar at 8-month peak on expectations the Fed raising rates

The dollar rose on Monday to a new eight-month high against major currencies, supported by expectations of raising interest rates before the end of the year.
The dollar index, which tracks the US currency against a basket of six major rivals, rose by 0.1 percent to 98.718, after rising up to the level of 98.846, its highest level since February, 3rd.
Last Friday, the head of the Federal Reserve Bank of San Francisco John Williams repeated his appeal for rapid increase in Fed rates, telling reporters that "this year eligible" for the tightening of monetary policy.
His comments were preceded by "hawkish" statements and other central bank officials, including the president of the Federal Bank of New York William Dudley and Fed Vice Chairman Stanley Fischer.
Quotations of futures on the federal funds rate show that the market assesses the likelihood of Fed rate increase in December to 70 percent.
The dollar also received a support by a recent poll, according to which US presidential candidate from the Republican Donald Trump loses against representing Democrats Hillary Clinton on the eve of the elections on 8 November.
The euro weakened by 0.1 percent to $ 1.0874, approaching Friday's low of $ 1.0857, the lowest level since March 10.
Against the Japanese yen the dollar gained 0.1 percent, rising to 103.86 yen.
Published on Monday data showed that Japan's positive foreign trade balance in September is at the level of 498.3 billion yen ($4.8 billion) against the average forecast of 341.8 billion yen.
Offshore yuan, trades in which are held outside of mainland China, updated six-year low against the dollar after weakening of the yuan in the market of mainland China on the background of the growth of the dollar index.

Is parity between the dollar and euro seen on the horizon?

Euro/dollar on Friday successfully updated the minimum from eight months. On Thursday "bears" did not have quite a bit: the instrument stumbled on 1.0913 (the "bottom" stood at 1.0911), but on Friday the market has corrected this misunderstanding. Dollar rises in price everywhere, rapidly and confidently. The main trades in EUR/USD at the beginning of the week go around 1.0880, sellers goal shifted to 1.0821, a minimum of March 10 this year.
Nothing new has happened. Just in the background there was an empty macroeconomic calendar, investors continued to win back the results of the meeting of the European Central Bank, which took place on Thursday. The belief that Mario Draghi will soon (possibly this December) will announce the extension of the quantitative easing program, is growing with each passing hour. While in the ECB at the official level it is still not discussed, but also the time to make such a decision is enough.
Mitigating of European QE on the background of interest rate rises by the Federal Reserve System draws in the investors imagination very colorful pattern, where the euro is weak, falls on each sneezing, and the dollar is strengthening its market position. There, you see, speaks about parity become louder and louder.
However, it's not that simple. Perspectives outlined above are already in currency quotations, everything else is emotions and reactions. So in December will still be euro/dollar movements, perhaps with drops to 1,06-1,07, but the market quickly will play them back and will return in the medium range of 1,08-1,10.

The USD/JPY reached 3 weeks maximum against the background of official comments about the Fed rate

The dollar rose to a peak of three weeks against the yen on Monday, as comments by the US Federal Reserve strengthened expectations of interest rate rise in the near term.
The yield on US government bonds rose to the highest levels since June, and interest rate futures indicated that the probability of a rate hike in September exceeded 30 percent, compared with 18 percent before the speech of Fed Chairman Janet Yellen and her deputy Stanley Fischer, showed FedWatch data from CME Group.
The dollar on Monday rose by 0.5 percent against the yen to 102.39 yen, the highest level since 9 August. By 12.00 GMT the dollar strengthened by 0.42 percent to 102.25 yen.
The dollar index against a basket of major currencies grew by 0.19 percent to 95.752. Euro fell by 0.24 percent to $1.1168.
Speaking at the three-day symposium of central bankers in Wyoming, Yellen said, that the probability of a Fed rate to be increased in recent months due to improved labor market indicators and expectations of moderate economic growth has rose.
Yellen did not specify when the US Central Bank may raise rates again, but her deputy, Stanley Fischer, said, that the Fed chairman speach on Friday met the expectations of the likely increase in interest rates this year.

The Fed governor: The chance of a rate hike has increased in recent months

The probability of increasing Fed's rates enlarged in recent months due to improved labor market indicators and expectations of moderate economic growth, said the head of the Federal Reserve Janet Yellen on Friday.
Yellen did not specify when the US Central Bank is about to increase the rate, but her comments reinforced the likelihood, that such a move is possible later in 2016. Fed meetings regardless monetary policy, are scheduled for September, November and December.
Speaking at the three-day conference of representatives of the world's central bankers in Jackson Hole, Wyoming, Yellen said, that the US economy is close to the statutory targets of maximum employment and price stability.
"In light of the steady strong performance of the labor market and our forecasts of economic activity and inflation, I believe that the probability of increasing the federal funds rate has increased in recent months," - said Yellen in her speech.
The Fed chief said, that the regulator still believes, that the rate increase should be "gradual".

Do not believe the noice around the US dollar

Fed's communication strategy suffers from a reputation problem. This week it has been an officials hawkish Fed statement, but the US dollar and, more importantly, the yield curve of US bonds, have failed to reflect the likelihood of a September rate hike. Markets assessed the probability of a rate hike by 20% in September, and in December - by 45%. Of course, markets do not trust the wording of the Fed (they do not have the reasons, given earlier statements). The head of the FED Bank of New York Dudley said, that the US economy remains healthy and it is supported by the labor market and wage growth. He mentioned, that the markets are underestimating the likelihood of the Fed to tighten monetary policy. The head of the Federal Reserve Bank of Dallas Kaplan suggested, that the Fed is still possible to raise rates. These statements seem to set the stage for the future statements of Fed's Chairman Yellen in Jackson Hole, signaling the impending rate increase.
The sudden change in expectations would surely catch the markets by surprise, quickly raising the yield curve of US bonds and giving upward momentum for the dollar. However, I believe that analysts, who are calling for a rate hike, do not take into account the global context and overestimate small by historical standards, improvements in the US economy. Thus, the current economic momentum in the US, seem to stable only in comparison with the extremely ambiguous world data. In addition, increasing rates now in low and falling profitability in the global markets will lead to exceeding the targets, set by the tightening of monetary policy, since capital will rush in US assets.
I remain skeptical about the dollar rally and consider the prevailing bullish momentum better like closing long positions in illiquid markets (their importance is exaggerated), than like a change of moods.