USD Bounces Off 3mos Low on sharp Jump in Price Inflation
5/12 9:33 AM
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,, (c) Copyright 2021 DTN, LLC. All rights reserved.
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