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US Dollar Trades Close to Near Two-Week Lows Over Weak Inflation Report

US Dollar Trades Close to Near Two-Week Lows Over Weak Inflation Report

Posted Thursday, February 11, 2021 by
Arslan Butt • 1 min read

The weakness in the US dollar continues until early trading on Thursday on the back of a disappointing CPI report even as the Fed once again reminded markets of its plans to maintain low interest rates. At the time of writing, the US dollar index DXY is trading around 90.36.

During the previous session, the US CPI report which released revealed that inflation came in at 0 against expectations for a reading of +0.2. The weaker inflation report served to reinforce the Fed’s decision to extend its monetary easing for a longer period of time, which is likely to weigh on the dollar and keep it under pressure.

In a recent speech, Fed chairman Jerome Powell had highlighted the high unemployment rate and soft inflation data as reasons for continuing with monetary easing and holding interest rates close to zero. The dovish outlook reduces the returns from investing in the greenback, and will keep investors wary about buying the reserve currency, especially as the risk sentiment improves in global markets.

Inflation is one of the most important economic data that influence the value of currencies, especially when it comes to the US dollar. With the vaccine rollout already underway, economists foresee an improvement in consumer demand in the coming months, which should drive inflation higher and could potentially force the Fed to rethink its strategy.

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