Inflation Report May Decide Dollar Outlook

On Monday morning in London, the dollar continued to rise from the previous week. The U.S. remains a source of caution for investors. Despite an increase in COVID-19 cases worldwide, the Federal Reserve is beginning asset tapering.

As of this writing, the U.S Dollar Index, which measures the dollar’s performance in relation to other currencies, increased by 0.10% to 92.668. The contract for December 21 was rolled over on September 12.

Most of the losses that the Dollar suffered after the US payroll report for August was weaker than expected, have been recovered.

The opening price today is 92.65. The FOMC meeting is just around the corner, and market participants anticipate clear language from officials about the taper program.

Despite holding steady at 5.4% for two consecutive months, the headline reading for the US CPI is projected to slip to 5.3% in August, while the core rate is projected to narrow for the second consecutive month.

A slowdown in price growth could cause the US Dollar to lose strength, since the Federal Open Market Committee (FOMC) acknowledges that “the economy has not yet achieved its broad-based and inclusive employment objective,” so the monetary policy may continue as it is, with Chairman Jerome Powell insisting that “there is much more ground to cover.”

A rising US Dollar may be triggered by signs of sticky inflation that put pressure on the Federal Open Market Committee to normalize monetary policy sooner rather than later, but it remains to be seen whether Fed officials will change the Summary of Economic Projections, given the fact that “some participants cited lingering supply disruptions and labor shortages as downside risks to inflation.”

That said, as the Fed enters its blackout period from the media, fresh developments coming out of the US economy could influence the Greenback, however, as it seems to have reversed course just ahead of the August low (91.82), the (DXY) could look at further gains.

For the years 2022 and 2023, I predict inflation to begin falling back to 2% over the course of this year and end at 4% this year.

I’d like to start the tapering process as soon as possible so that we can complete the tapering process before the rate increase is necessary.