Dollar Gains Even as Inflation Seen as Temporary

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Dollar Gains Even as Inflation Seen as Temporary

JUNE 11, 2021

The U.S. Dollar is up slightly this morning after ‘yo-yo’ing during yesterday’s session. 

Overview

Yesterday’s consumer price index showed that inflation pressures were higher than expected.  But a breakdown of the number shows that most of the price increases were in categories that are driven by economic reopenings such as used vehicles, airfares, and hotels.  This bolsters the Federal Reserve’s argument that the spike in inflation pressures will be “transitory” and give them the scope to keep their accommodative policy longer.  Thus, equities markets rallied and look to continue their positive momentum today.  On the flip side, the U.S. dollar is down 0.2% on the week.

The economic docket is light today, with only the University of Michigan Consumer Sentiment due out at 10 a.m.  The greenback may take its cues from general risk sentiment today, possibly losing its modest gain if global equities rally to new record highs.  We will be also looking at headline risk as the G7 begins in the United Kingdom.

What to Watch Today…

  • G7 Meeting Begins in Cornwall

View Economic Calendar

EUR  

EUR/USD was steady for most of the evening after the German Bundesbank upgraded Germany’s growth forecast for 2021 from 3% to 3.7%.  However, the common currency has fallen nearly half a percent from the overnight highs over the past three hours.  European bond yields are falling after ECB council member Klass Knot said the central bank can control inflation.  The dovish comment from Knot seems to be enough to knock the Euro lower to start the day.

The Euro may find support at the monthly low (2 tenths lower), so the move lower could be short-lived.

GBP  

The British pound is under slight pressure as continued worries over the plausibility of the planned reopening at the end of the month have outshined decent economic data.  Gross domestic product rose 2.3% in March, showing a rebound from the worse of the pandemic.  A breakdown of the print shows disappointing and unexpected declines in manufacturing and construction, according to the Office for National Statistics.

Prime Minister Boris Johnson and the U.K. will host a meeting of the G7 this weekend in Cornwall.  Ahead of the meeting, Johnson and U.S. President Joe Biden went out of their way to show off the two countries’ “special relationship.”  The courting comes despite continued tension over the United Kingdom leaving the European Union and lingering issues surrounding Brexit.

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