USD Bounces Off 3mos Low on sharp Jump in Price Inflation
WASHINGTON, D.C. (DTN) -- In reaction to stronger-than-expected inflation
data for April, the U.S. dollar index strengthened more than 0.4% against a
basket of foreign currencies, breaking above its 90.485 200-hour moving average
as investors raised bets Federal Reserve would tighten QE monetary policy
earlier than previously thought.
U.S. Bureau of Labor Statistics reported consumer price index jumped 0.8% in
April compared with a consensus by economists for a 0.2% increase, lifting
year-on-year headline inflation to 4.2% -- the largest 12-month increase since
September 2008.
Further details of the report showed the index for used cars and tracks
spiked 10% -- the largest monthly increase on record, followed by
transportation services and utilities, up 2.9% and 2.4%, respectively. The
price index for food, meanwhile, rose 0.4% compared with 1% gain in March and
2% hike in February.
Economists have long forecast inflation would rise this year as the economy
reopens, releasing pent-up demand following trillions of dollars released by
the U.S. Treasury that was spent on government assistance programs including
direct payments to citizens. However, the pace of price increases might now
exceed what the Federal Reserve is comfortable with and could prompt a policy
change sooner than expected.
Federal Reserve Vice Chairman Richard Clarida expressed concern over the
accelerating inflation trend in April.
"I was surprised, this number was well above what I and other forecasters
had expected," said Clarida, adding that "it is important that inflationary
pressures are temporary otherwise, tools can be used."
Financial markets are now pricing in a 100% probability of a 0.25% increase
in the federal funds rate by December 2022 compared with an 88% probability
before April's CPI data.
Liubov Georges, 1.646.359.4088, liubov.georges@dtn.com,
http://www.dtn.com.
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