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Hot Inflation Data Sends U.S Dollar Up

By:
Olumide Adesina
Updated: Nov 14, 2021, 08:53 UTC

The yen suffered its worst loss in a month after the hottest U.S. inflation reading in a generation fanned predictions of rate hikes

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Against sterling and the euro, the dollar surged to 2021 highs on Thursday, while the yen suffered its worst loss in a month after the hottest U.S. inflation reading in a generation fanned predictions of rate hikes.

Data showed that U.S. consumer prices rose at their fastest annual rate since 1990 last month, and traders think the Fed will respond faster than its European and Japanese peers by raising interest rates.

A largely inactive Asian session on Thursday sees the Dollar Index pare recent gains below 95 index points.

The greenback gauge surged to its highest levels since July 2020 the previous day, while also crossing two resistance lines: April and 200-week simple moving average.

Despite other central banks considering similar moves, an increase in the dollar index above 95 might prompt investors to get out of the way of a strengthening dollar.

The index climbed to 95 Thursday. If the market participants can break through this technical barrier, then more currency traders will throw in the towel.

The dollar’s broad rise has also adversely affected emerging market currencies, with MSCI’s EM currencies index making its sharpest drop in two months.

As Treasury yields have risen when prices have fallen, the difference between U.S. ten-year yields at the end of the year and those at the end of the year in Japan and Germany is the widest for the longest time, in favor of Treasuries.

Interest rate hike expectations were pushed forward by concerns about price pressures. The 10-year Treasury yield rose more than 10 basis points, crossing across the curve. An auction for 30-year notes failed to please investors. New Zealand and Australia’s sovereign bonds fell. Due to a U.S. holiday, no cash Treasuries are traded Thursday.

It is under threat from the argument that pandemic-related distortions are temporary causes of price pressures.

The Federal Reserve is expected to raise interest rates as soon as it completes its tapering of bond purchases by the middle of next year. Global stocks, which remain near record levels, are at risk from a more hawkish outlook.

Inflation expectations soared on the U.S. bond market. Historically, the breakeven rate over a five-year period has been above 3%. Yellen reiterated her view on Tuesday that high inflation won’t persist beyond next year and that inflation won’t rise to the level of the 1970s.

About the Author

Olumide Adesina is a France-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment trading. He is a Member of the Chartered Financial Analyst Society.

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