US Dollar Flat As Food, Gas Send Consumers Prices to Five-Month High

The US dollar is holding steady against many of its major currency peers in the middle of the trading week. Inflation came into focus for foreign exchange markets on Wednesday, as well as the likelihood that the US government will pass President Joe Biden’s $1.9 trillion stimulus and relief package. After an impressive start to 2021, the buck has taken a breather, sliding nearly 1% over the last week.

According to the Bureau of Labor Statistics (BLS), the annual inflation rate came in at 1.4% in January, unchanged from December. This was slightly below the market forecast of 1.5%.
The biggest drivers of inflation last month were food (3.8%), gasoline (7.4%), used automobiles (10%), medical care services (2.9%), and shelter (2.9%). On the other hand, electricity and natural gas prices eased in January.
The core inflation rate, which eliminates volatile food and energy, was flat at 0%.
On the housing front, according to the Mortgage Bankers Association (MBA), mortgage applications declined 4.1% in the week ending February 5, down from the 8.1% jump in the previous week. The 30-year mortgage rate edged up to 2.96%, up from 2.92%.
Investors will be monitoring Federal Reserve Chair Jerome Powell‘s speech this week, an event that could impact the future direction of the dollar.
ING strategists wrote in a research note to clients:

The mix of clear upside price pressures, the risk of an overshoot and CPI staying higher for longer, along with a cautious Fed sticking to its Average Inflation Targeting framework to make up for past inflation undershoots, should lead to a lower USD as US real rates remain deeply negative.

Financial markets will also be watching the battle over President Biden’s proposed $1.9 trillion fiscal stimulus package and the inflationary effects it would have on the dollar. Ultimately, markets are cheering on Biden’s plan since it would inject money into the markets and elevate risk tolerance and confidence among traders. At the same time, this would put pressure on the conventional safe-haven asset since investors would pour into equities and riskier bets.
Treasurys were a sea of red midweek, with the benchmark 10-year bond slipping 0.021% to 1.136%. The one-year note was flat at 0.074%, while the 30-year bond tumbled 0.024% to 1.923%.
The US Dollar Index (DXY), which measures the greenback against a basket of currencies, fell 0.08% to 90.37, from an opening of 90.49. The index is up 0.5% on the year, but it is down 0.9% over the last several trading sessions.
The USD/CAD currency pair dropped 0.04% to 1.2688, from an opening of 1.2695, at 13:16 GMT on Wednesday. The EUR/USD rose 0.07% to 1.2129, from an opening of 1.2122.
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Original from: www.earnforex.com