Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Will Realized Inflation Fears Drive U.S. Dollar To Fresh Highs?

By Kathy LienCurrenciesMar 09, 2021 22:24
uk.investing.com/analysis/will-realized-inflation-fears-drive-us-dollar-to-fresh-highs-200462134
Will Realized Inflation Fears Drive U.S. Dollar To Fresh Highs?
By Kathy Lien   |  Mar 09, 2021 22:24
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
The U.S. dollar traded lower against all of the major currencies. The lack of U.S. economic releases meant that the greenback took its cue from yields. After hitting a high of 1.6%, 10-year Treasury yields pulled back as traders wait for the stimulus bill passage and Wednesday’s inflation report. The House plans to vote on the $1.9-trillion relief package tomorrow and, while there’s always risk that investors will sell the news, the economic impact of $1,400 stimulus cheques will be too significant to overlook for long. The $600 December stimulus payment drove retail sales up 5.3% in January, far higher than economists anticipated. The $1,400 stimulus cheque is two times greater and should provide an even bigger boost to the economy in the second quarter.
 
The only problem is that the consumer price index is also scheduled for release, and this report is widely expected to reinforce everyone’s concerns about inflation. Between January and March, 10-year Treasury yields rose from 0.95% to a high 1.6%. This alarmingly fast move was driven entirely by inflation expectations. The economy is improving, interest rates are low and many investors believe that the rise in commodity prices will translate into broader price increases. This could, in turn, force central banks to review their policies and reduce stimulus earlier than expected. The Federal Reserve says that won’t be the case, but based on the rise in yields and the U.S. dollar, investors think otherwise. 
 
The stock market provided an important clue on what will matter more to investors on Wednesday. The Dow Jones Industrial Average was up more than 200 points intraday but gave back nearly all of its gains by the end of the New York session. This decline reflects concerns about stronger CPI, its potential to drive yields higher and equities lower. Stocks are vulnerable to a correction, which could drive the U.S. dollar. 
 
The Canadian dollar will also be in focus with the Bank of Canada’s monetary policy announcement. The overall strength of the loonie tells us that investors are bracing for optimism. While other major currencies sold off last week and into Monday, USD/CAD traded in a very tight range. According to the latest economic reports, Canada’s economy is improving. Manufacturing activity accelerated, GDP growth beat expectations, the trade surplus increased and more builders are applying for permits. So while vaccine rollout has been slow and restrictions remain for many provinces, the outlook brightened. Combined with the prospect of a stronger employment report at the end of the week, the BoC will most likely maintain its optimism. The only problem is the strong currency. The Canadian dollar is hovering near a three-year high, and the central bank may not want to take steps to drive it even higher. 
 
Meanwhile, mixed Eurozone data allowed EUR/USD to bounce off the 200-day SMA. Germany’s trade surplus declined, but exports grew at a faster pace. Fourth quarter Eurozone GDP growth was revised lower, but Q3 numbers were revised higher. The European Central Bank meets on Thursday and, unlike the BoC, the ECB has more reasons to be dovish.
 
The best performing currencies were the Australian and New Zealand dollars, which is no surprise as both countries continue to recover. Still, Australian business confidence improved, while New Zealand business confidence deteriorated. We’ve been seeing more improvements in Australia data than New Zealand, which could pave the way for a stronger AUD/NZD cross.  
Will Realized Inflation Fears Drive U.S. Dollar To Fresh Highs?
 

Related Articles

Andey Goilov
EUR/USD Remains Near the Lows By Andey Goilov - May 16, 2022

Early in another week of May, EUR/USD remains weak; the asset is consolidating around 1.0400, which is very close to the 2-year lows at 1.0348 reached last Friday. Market players...

Will Realized Inflation Fears Drive U.S. Dollar To Fresh Highs?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Alex Klein
Alex Klein Mar 10, 2021 5:33
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Excellent review. Thanks.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email