Dollar Rallies Following Inflation Spike

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Dollar Rallies Following Inflation Spike

JULY 13, 2021

The U.S. Dollar was slightly stronger overnight while holding recent ranges ahead of his morning’s inflation data.   

Overview

The dollar is now in rally mode in early trading following hot inflation data.  Consumer prices rose 0.9% in June after rising 0.6% in May.  The print is well above the estimate of a 0.5% uptick.  Year over year consumer prices rose 5.4%, considerably higher than estimates of 4.9%.  The so-called “core readings” were also all above forecasts.

Today’s data will make it harder for Fed officials to argue that inflation will be “transitory.”  As a result, the dollar is gaining across the board as traders increase bets that the Fed will have to raise rates sooner than they have indicated.

There is no other data slated for release or Fed speakers on today’s docket so the greenback may stay in the green all day as traders further contemplate the fallout of the CPI data.

What to Watch Today…

  • No major economic events scheduled for today

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EUR  

The Euro was under slight pressure overnight.  The common currency was weighed down by falling European bond yields.  In addition, rising Covid rates are threatening the pace of recovery in the Euro bloc with various governments instating new Covid restrictions.

However, the bulk of the credit for this morning’s move is the higher-than-expected consumer inflation data in the United States.  EUR/USD is now only three-tenths away from July’s lows, which is seen as a key support level.

GBP  

The British pound was down slightly overnight, and those losses are picking up steam following the U.S. inflation data.  Recently, the sterling has been under pressure over fears that an increase in Covid cases will slow the reopening of the British economy.  Prime Minister Boris Johnson gave an address yesterday confirming that all remaining virus restrictions will be lifted on July 19th.

This is priced into the sterling price. However, the move comes as a growing chorus of doctors that warn “the fresh toll of the pandemic will overburden an already beleaguered National Health Service.”  The U.K.’s Scientific Advisory Group for Emergencies has warned that they expect 200 daily deaths by August.

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