Dollar lower following higher U.S. inflation data

by Jonathan Adams
US inflation data

Data released on Thursday said that the CPI climbed 5.0% year-on-year in May

The dollar was down on Friday morning in Asia after the U.S. posted higher-than-expected inflation data in May.

The US Dollar Index inched down 0.11% to 89.980 by 4:14 AM GMT.

The USD/JPY pair edged up 0.08% to 109.40, with a new analysis saying another pandemic surge could come in Japan with or without the Olympics.

The AUD/USD pair edged up 0.04% to 0.7755 as Australia is working on a quarantine-free travel corridor with Singapore. In New Zealand, the NZD/USD pair edged down 0.01% to 0.7195.

The USD/CNY pair inched down 0.10% to 6.3865.

The GBP/USD pair edged up 0.06% to 1.4182. Investors will be monitoring the opening of the Group of Seven leaders’ summit in the U.K. on Friday.

In the U.S., data released on Thursday said that the consumer price index (CPI) climbed 5.0% year-on-year (YOY) in May, above 4.7% in forecasts and 4.2% growth during the previous session. It posted the sharpest increase in more than a dozen years.

However, investors bet that price pressures are not going to force the U.S. Federal Reserve Bank to hike interest rates sooner than expected due to hefty contributions from short-term rises in airline ticket prices and used cars.

It basically fit the Fed script, that we’d get a burst but it’s going to be temporary. This report is consistent with that, it doesn’t argue against it. I think the market needed something that argued against it to push the U.S. dollar higher, Westpac currency analyst Imre Speizer told Reuters.

Investors now await Fed’s meeting next week, although investors are aligning with the Fed’s view that inflationary pressures are temporary and that the central bank will keep its current dovish monetary policy unchanged for a while.

It is expected that the central bank will announce a plan for reducing bond buying, but it isn’t forecast to begin until 2022, according to a Reuters poll of economists.

What we’re seeing is a market that believes in the Fed. We’re going to get tapering. But it’s going to get done at such a snail’s pace, Chris Weston, head of research at broker Pepperstone, told Reuters.

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