U.S. Inflation Data and its Impact on Dollar

dollar, 100 USD on wooden table.

Markets digested the high U.S. inflation number and moved on- leaving the world’s reserve currency under pressure as well as most majors stuck in ranges. Early in the Asia session, the dollar nursed small losses, as traders figured there were enough one-offs in May’s 0.6% rise in consumer prices to support the central bank’s position regarding inflation.

The consumer price index (CPI) rose 5% from a year earlier. The reading represented CPI gain in more than a decade. Officials from the Federal Reserve believe the current rise is due to temporary factors. Thus, market participants generally don’t expect to see the Fed react to the latest numbers during the meeting of the Federal Open Market Committee.

A plan for reducing bond-buying is anticipated to be announced in August or September. However, it is not forecast to begin until next year.

Used cars and truck prices continued to increase, rising 7.3% on the month and 29.7% for the past 12 months. The new vehicles index rose 1.6%, its biggest single month gain since October 2009. The index was up 3.3% for the 12 months, the highest move since November 2011. But, the energy index was about flat for the month despite the pump in gasoline prices in 2021. Meanwhile, the food index reported its April rise of 0.4%.

The gasoline index rose 56.2% over the past year, part of an overall 28.5% increase in energy during the period. Food prices remained comparatively tame, up 2.2% for the 12 months.

A separate gauge that excludes volatile food, as well as energy prices, rose 3.8%. Interestingly, that was the fastest pace since May 1992.

Dollar, euro, and ECB

The dollar index fell 0.1% in the Asian session to 89.995. It was on course for a small weekly loss of around 0.2%.

There were signs of slightly increased risk appetite in currency markets, as the Australian gained 0.2% to $0.7768. The New Zealand dollar added 0.1% to $0.7204.

A dovish stance from the European Central Bank (ECB) at its meeting had little effect on the euro. The central bank said it would continue its emergency bond-buying at a significantly higher pace.

A gauge of euro-dollar suggested volatility over a six-month horizon was at its lowest since early March 2020.

The single currency was flat on the day at $1.2181 and set for a small weekly gain of around 0.1%.

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