Dollar Gains as Inflation Fears Intensify
OCTOBER 21, 2021
The U.S. Dollar is modestly stronger this morning but the move would be hardly noticeable to non-chart watchers like ourselves.
Positive earnings have buoyed risk appetite in recent days and caused the dollar to give back all of its gains from its September rally. 84% of companies reporting earnings so far have beat analysts’ expectations. However, inflation fears continue to grow. Bloomberg News reported this morning that market-implied expectations for U.S. inflation for the next half-decade surged to the highest in 15 years, mostly driven by higher commodity prices.
There were no major surprises on this morning’s economic docket. Weekly jobless claims fell to 290K, almost identical to last week’s reading. The Philly Fed disappointed, falling to 23.8 from an estimated 25.0. Existing Home sales are due out later this morning and Fed Chief Jerome Powell will take place in a panel discussion tomorrow.
What to Watch Today…
- Existing Home sales at 10 a.m.
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The Canadian dollar slipped a touch against the U.S. dollar, breaking a two-day streak of gains. The price of WTI oil fell 1.4% overnight while the loonie only fell 0.1%, showing fairly strong resilience of the Canadian dollar.
Canada will report retail sales tomorrow morning. The Bank of Canada’s next meet is Wednesday, October 27th. Yesterday’s high inflation print has caused traders to increase rate expectations for rate hikes in 2022, but the central bank is unlikely to make a change this month.
The Japanese yen hit its weakest level since 2017 yesterday morning. While the dollar has given up much of its gains from the rally of late last month against other G10 currencies, the Japanese yen continues to lag behind. Rising global equities and the S&P within half a percent off its all-time highs have dampened demand for the safe-haven yen.
A strong earnings season has propped up risk appetite despite the lingering concerns over inflation and the prospect of less monetary stimulus from various central banks. USD/JPY is enjoying a momentum trade but it is our view that the Japanese yen is oversold. Once the momentum subsides, we expect USD/JPY to retrace over the medium term.