U.S. Inflation Impacting Fed’s Policy

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U.S. Inflation Impacting Fed's Policy

On Thursday morning, the dollar rose in Asia, fighting its way back from overnight lows. Although statistics revealed that consumer prices in the United States climbed at their quickest rate in over 40 years, it is unlikely to sway an already hawkish monetary policy.

By 10:19 p.m. E.T., the U.S. Dollar Index, which measures the greenback against a basket of other currencies, had risen 0.07 % to 94.970. (3:19 AM GMT). The USD/JPY exchange rate fell 0.07 % to 114.55. The Australian dollar fell 0.01 % to 0.7283, while the New Zealand dollar rose 0.16 % to 0.6855. The USD/CNY exchange rate rose 0.03 % to 6.3605, while the GBP/USD exchange rate rose 0.11 % to 1.3716. The pound has been gaining ground on expectations that the Bank of England would raise interest rates as soon as February 2022, and investors are confident that the economy will weather the new COVID-19 outbreak.

Pandemic and Economy

Prime Minister Boris Johnson has apologized for attending a party during Britain’s first COVID-19 lockdown. However, the issue has had little impact so yet. , the core consumer price index (CPI) increased 0.6 % month over month and 5.5 % year over year in December. The CPI increased by 7% year over year, the fastest since June 1982, and 0.5 % month over month.

In a note, markets strategist Jan Nevruzi said, “I don’t think anything within the components of the CPI led the market to heave a sigh of relief.” When CPI was running at a third of its current rate, a few tenths of basis points on each consensus side had considerably less weight.

“The dollar does not need to climb since the Fed is preparing for a tightening cycle. It’s not as simple as the Fed raising interest rates equaling a rise in the currency’s value. The dollar is a counter-cyclical currency, which depreciates when the world economy improves.” stated Joe Capurso, a Commonwealth Bank of Australia strategist. Later in the day, investors will watch the Senate Banking Committee hearing for Fed vice-chair nominee Lael Brainard.

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