CPI (consumer price index) inflation has been increasing really fast in the US and Europe, which has sent central banks into panic mode, with the FED delivering a 50 bps rate hike in the last meeting, and they are expected to do so again this week, on the Wednesday meeting. Consumer inflation keeps increasing, although this is not coming from an economic boom, but rather from the fact that large suppliers continue to increase prices, with the excuse of the war in Ukraine.

PPI (producer price index) remains high and it is expected to increase from 0.5% in April to 0.8% in May. PPI has been increasing in China and Japan at the same rate as in the western countries, but that hasn’t translated into higher consumer prices, which means that the government is doing a fine job. In the US, the FED is doing the battle, but it’s a losing one.

The USD gauge tracks the US Treasury yields while snapping a four-day uptrend near the multi-year high. The benchmark US 10-year Treasury bond yields pare recent gains around 3.36%, down 1.1 basis points (bps) from the highest levels since April 2011, marked the previous day. The pullback in yields contradicts the recently firmer chatters surrounding the Fed’s 75 bps rate hike.

The US rate futures imply a 96% chance of the FED raising rates by 75 bps at the June meeting, versus not more than 30% a few days back. If the PPI inflation comes up above expectations, that would mean that a 0.75% rate hike by the FED will be a done deal, which is why the USD is running higher pretty fast. The Buck has resumed the bullish momentum now after a retreat early this morning, so we remain bullish on the USD against major currencies and will try to pick trades again today after buying USD/JPY earlier and selling BITCOIN (BTC).

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