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U.S. Dollar Bulls Charge In As Inflation Speeds Up

By Kathy LienForexMay 12, 2021 04:45PM ET
www.investing.com/analysis/us-dollar-bulls-charge-in-as-inflation-speeds-up-200579712
U.S. Dollar Bulls Charge In As Inflation Speeds Up
By Kathy Lien   |  May 12, 2021 04:45PM ET
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The U.S. dollar soared on Wednesday on reports that consumer prices rose at their fastest pace since 2008. Federal Reserve Chairman Jerome Powell warned about a temporary rise in prices, but no one expected such a strong increase. On a month-to-month basis, CPI rose 0.8%, four times more than expected, and year-over-year, the CPI rate was 4.2% versus 3.6% estimate. Fed Vice Chairman Richard Clarida said he was “surprised” by the sharp rise in inflation, leaving investors wondering if today’s report raised eyebrows for other policy-makers.
 
Stocks tumbled as rising prices affects business margins, drives yields higher, which affects borrowing costs and puts pressure on the Federal Reserve to reduce stimulus. For now, policy-makers will hold firm to their view that this increase is transitory, but many investors are worried that the robustness of the recovery will make price increases durable. The return of consumer demand and supply shortages drove the price of food, airfare, car rentals, used car sales and gas sharply higher. It is hard to see demand abating and price growth slowing materially before the end of summer. The longer prices remain high, the more likely they will become permanent.  
 
The U.S. dollar should hold onto its gains going into Friday’s retail sales report. Between higher inflation and stronger wage growth, there’s a good chance for a consumer spending surprise. Economists are only looking for retail sales to grow 1% after 9.8% increase the previous month. Like inflation, this may turn out to be an unusually low forecast. USD/JPY enjoyed its strongest one-day rally since early March and could test 110 before the end of the week. Producer prices are due for release tomorrow, but after CPI, PPI should have little impact on the U.S. dollar. Instead, traders will be focused on weekly jobless claims after the last nonfarm payrolls reports.
 
The New Zealand and Australian dollars were hit the hardest by the sell-off in stocks, losing more than 1.5% of their value against the U.S. dollar. Both countries are enjoying low COVID cases, strong housing markets and healthy recoveries, but they are high-beta currencies that are generally very sensitive to risk appetite. The Canadian dollar also ended the day lower but it was the most resilient, losing only 0.2% of its value versus the greenback.
 
The euro started the day under pressure following weaker-than-expected industrial production numbers. The UK’s economic reports were overwhelmingly strong, but sterling was unable to avoid losses. The UK economy contracted 1.5% in the first quarter, while industrial production rose 1.8%. With no major Eurozone or UK data due for release later this week, the euro and sterling will trade primarily on the market’s appetite for U.S. dollars.  
 
U.S. Dollar Bulls Charge In As Inflation Speeds Up
 

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U.S. Dollar Bulls Charge In As Inflation Speeds Up

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Comments (13)
John Smit
John Smit May 13, 2021 3:30AM ET
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Imagine what China must be thinking...sitting on 20-plus years worth of accumulated USD...and to now see it worthless. Think again, they ain't going to allow their USD reserve to turn to dust, no chance. FED trying to bankrupt China. Long live USD.
ae sangkeow
ae sangkeow May 13, 2021 12:19AM ET
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atta
miracle Kingsley
miracle Kingsley May 13, 2021 12:19AM ET
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hello
Adam Taylor
Adam Taylor May 12, 2021 9:47PM ET
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When you look in detail, huge part of the %0.8 Month-to-Month inflation comes from %10 price raise in second hand cars. That's where the pandemie checks are currently used by the public.
Hamid Shabestani
Hamid Shabestani May 12, 2021 9:19PM ET
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Thanks so much🍀🌹
Tobechukwu Olumba
Tobechukwu Olumba May 12, 2021 8:20PM ET
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Crypto currency is the only one out there.
Sam Raymer
Sam Raymer May 12, 2021 6:48PM ET
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Crypto baby...
Brandon BB
Brandon BB May 12, 2021 6:27PM ET
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inflation is just media speak for currency devaluation. and the devaluation has been massive. fiat normally doesn't last long after the currency loses trust and inflation begins hitting. stop inflation and risk crashing everything; keep everything floating and risk further inflation. it's a lose-lose scenario. there is no going back, this won't end well.
Heine Pedersen
Heine Pedersen May 12, 2021 6:25PM ET
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The dollar is dead..
Brandon BB
Brandon BB May 12, 2021 6:25PM ET
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yep. just waiting for most of america to figure it out still. grab the popcorn. it's gonna be a 💩 show
Theara Theara
Theara Theara May 12, 2021 6:22PM ET
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Theara say
William Bailey
William Bailey May 12, 2021 5:52PM ET
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Wait wait wait .... what happend to terrible jobs report good for greedy stock market?!
kamorudeen Ayodele
kamorudeen Ayodele May 12, 2021 5:44PM ET
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🤔🤔
David Allen II
David Allen II May 12, 2021 4:55PM ET
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This whole story sounds a bit familiar.
William Bailey
William Bailey May 12, 2021 4:55PM ET
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The exact opposite of what she said 2 days ago
Michael Wash
Michael Wash May 12, 2021 4:55PM ET
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William Bailey  like reading the NY Post! A rag is a rag just written by a different author!
Abdelraziq Abuaisha
Abdelraziq Abuaisha May 12, 2021 4:54PM ET
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This title needs to be modified: the Fed speeds up with repurchase of bonds. Which won’t last very long. Dollar has never been a hedge against inflation, and it will never be, Gold and only gold is the ultimate hedge against inflation. Fed will never be able to change economic basics:)
 
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