Currency Moves Muted as Traders Await Inflation Data

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Currency Moves Muted as Traders Await Inflation Data

FEBRUARY 10, 2021

After falling most of yesterday, the U.S. dollar was mostly quiet overnight. 

Overview

While U.S. equities ticked slightly lower yesterday, the rally in global stocks continues on improving virus trends.  Global stocks have gained for eight straight days, the best streak since November.  American futures are in the green again today.

The lack of movement in currency markets is likely a result of traders awaiting this morning’s consumer inflation data at 8:30. Year over year CPI is expected to rise to 1.5%, up from 1.4% and still well under the Fed’s 2% inflation target.  Fears of a quick jump in inflation after the passage of President Biden’s 1.9$ trillion recovery plan (and a slew of other reasons) can be blamed for the slowdown in the U.S. market rally and a spike in 30-year Treasury yields. Regardless of today’s print, there are plenty of market analysts who believe fears of inflation are overdone.  Indeed, bond giant Pimco said that price gains are not a concern for the next 12 months.  We tend to agree with their assessment.

Later, Federal Reserve chief Jay Powell will speak to the Economic Club of New York and market participants will be eager to hear his assessment on price stability.


What to Watch Today…

  • CPI at 8:30 a.m.

View Economic Calendar

TEMPUS IN REUTERS – DOLLAR FEELING THE HEAT
US Dollar Index Chart
“The reflation trade that boosted equities and caused the 30-year yield breach 2% has changed to worries that a quick spike in inflation would be detrimental to risk and also the dollar,” said John Doyle, vice president of dealing and trading, at Tempus Inc. in Washington.

GBP  

The British pound took a break from its recent rise against the greenback overnight.  The pound has been in rally mode and broke three-year highs against the recently beleaguered dollar.  We noted yesterday that the sterling has benefited from the dwindling expectation the Bank of England will need to enact negative interest rates to prop up the economy.  Our friends at Monex Europe also note that the pound may also benefit as the FTSE 100 Index is finally joining the risk rally that European and American stocks have enjoyed over the past 9 months.

CAD  

Commodity-based currencies have enjoyed gains due to a weakening dollar and the rise in commodity prices.  WTI has traded above its yearly high. The Canadian dollar moved stronger against the U.S. dollar yesterday but is relatively flat this morning.

The New Zealand dollar was unable to take advantage, however, and it’s the biggest underperformer among major currencies.

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