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US Dollar Surges After CPI Report Comes in Stronger Than Expected

US Dollar Surges After CPI Report Comes in Stronger Than Expected

Posted Thursday, November 11, 2021 by
Aiswarya Gopan • 1 min read

The US dollar is trading close to 2021 highs early on Thursday following the release of a strong inflation report in the previous session, driving up expectations in the markets for faster rate hikes by the Fed. At the time of writing, the US dollar index DXY is trading at around 94.91.

The headline US CPI soared to 6.2% YoY in October, marking the highest pace of increase seen in over three decades, and coming in stronger than the previous month’s reading of 5.4%. On a monthly basis, CPI spiked by 0.9% MoM, higher than economists’ forecast for a jump by 0.6% MoM instead.

The higher than expected inflation readings drove up the greenback and sent other major currencies on a bearish track, causing EUR/USD to crash by 1% and fall to the lowest levels seen since July 2020. Meanwhile, GBP/USD fell by 1.2% to the lowest levels since December 2020 while safe haven USD/JPY strengthened by 0.8%.

EUR/USD

The US dollar’s bullishness also impacted emerging market currencies, causing MSCI’s EM currencies index to fall to the lowest levels in two months. The sharp spike came as a result of an uptick in US Treasury yields following the release of the inflation data, as investors raised expectations for the Fed to announce a rate hike sooner than planned, even though officials have previously played down such sentiments.

Analysts foresee a high likelihood of the Fed intervening in case the dollar index surges past the key 95 level on worries of persistently high inflation. A rate hike by the Fed could serve to cool down the inflationary pressures and prevent the economic recovery underway in the US from weakening on account of the price rise.

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