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Dollar Regains Strength On CPI Data

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  • USD Strength Returns on Friday
  • Euro Drops Back After Policy Announcement
  • Wall Street Reaction Awaited

The US Dollar again returned to power approaching the weekend after a week where it had shown some weakness, considerably more so than in recent months. The return to form of the Dollar forex market comes as the US announced hotter than expected CPI figures. These numbers could continue to impact through the day as inflation remains the key concern for many traders. The Euro and Pound have both been pinned back heading into the day. Wall Street is still digesting the numbers but they are sure to reflect in the market.

US Dollar Moves Back on Top

The Dollar has reassumed its role as the dominant safe-haven currency moving toward the weekend. There had been some hope that a more positive market attitude would prevail and that the slightly weakening USD witnessed by those forex trading the currency early in the week would continue. This has not been the case as analysts dissect a higher CPI number than had been expected. 

The figure came in above estimates at 8.6%. This is slightly higher than the figure for the previous month of April, and the annual rise is the largest such number since 1981. Market watchers had expected the number from the Bureau of Labor and Statistics to come in at 8.3% for the month of May.

Euro and Pound Weighed Down

The higher than expected CPI number not only has implications on the US Dollar at forex brokers but also on the other major currencies around the world. Two of the biggest, the Euro and Pound Sterling were already under pressure ahead of the data this morning. The Euro which had been as high as 1.075 just days ago, was tracking back toward 1.06. The Pound which has been dealing with its own domestic issues is reversing toward 1.24. 

This is the expected reaction from both currencies in a situation where inflation is still showing no signs of tapering off. It will again ramp up the talk of even further Fed monetary policy tightening as the policymakers battle to get things under control. The ECB also indicated no change in their policy at least for the moment during their policy announcement earlier in the week.

Wall Street Remaining Cautious

With the CPI numbers just having been released, there has been very little time for those trading in the early hours to act on the news in a meaningful way. Trading prior to the release was cautious as is the usual case. 

The instant reaction to the number saw Treasury Yields spike higher, in particular the 2-year yield. All three major indices also marked the numbers with a further decline. The Dow Jones has so far dropped more than 200 points. The S&P 500 and Nasdaq are both following a similar trajectory with both moving down further prior to the opening bell.

Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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