U.S Dollar Rides High On Solid Economic Data

Despite being near a 16-month high, the dollar was up on Wednesday morning in London. Also, investors digested the latest economic data out of the United States and raised their bets that the Federal Reserve will raise rates earlier than expected.

The U.S dollar index tracks the greenback’s performance against other currencies, and rose 0.14% to 96.043 index points. This is the highest level since July 2020.

The U.S Department of Commerce reported on Tuesday that core retail sales grew 1.7% in October compared with the previous month. Overall retail sales were also better than expected at 1.7%.

On Tuesday, St. Louis Fed president James Bullard said that the Fed should prepare for longer-term high inflation by taking a more hawkish stance.

This month, the Fed will reduce its asset purchase program by $15 billion.

In addition, investors believe the Federal Reserve will need to adopt a more aggressive policy response to contain stubbornly high inflation rates. In October, US consumer prices rose at their fastest pace since 1990, according to data released last Wednesday.

A rate hike move by July 2022 appears to have begun to be priced in the markets, and the Fed funds futures indicate that another hike may be coming in November.

Despite ongoing supply chain issues and reopening bottlenecks, U.S. economic growth appears to have shaken off the soft patch caused by the COVID-19 Delta variant.

Markets will remain comfortable pricing in Fed hikes in 2022 after Hawkish comments from Bullard, a stark contrast to Europe where COVID-19 suppression is being implemented again.

Concerns about Europe’s economic recovery from COVID-19 have risen due to increased cases of the virus across the Atlantic. In response to Austria’s lockdown earlier this week, the German parliament will vote on Thursday on stricter measures to curb the outbreak.