The US dollar rises against major currencies on Wednesday (14th), boosted by stronger-than-expected US inflation data, which raised bets that the Federal Reserve will need to keep monetary policy restrictive for longer.
The DXY index, which measures the dollar against a basket of six major currencies, rose 0.4% to 104.20, its highest level since December.
The US Consumer Price Index (CPI) rose 0.5% in January, above the 0.4% estimate, and the annual inflation rate rose to 7.5%, the highest since February 1982.
“Inflation is showing signs of becoming more entrenched in the US economy, meaning the Fed will have to do more to control it,” said Edward Moya, senior market analyst at OANDA.
Markets are now pricing in a 70% chance of the Fed raising rates by 50 basis points in March, up from 30% last week.
Market reaction
- Stocks: US stocks fell after the inflation data was released, with the S&P 500 index down 1.2%
- Bonds: US Treasury yields rose, with the 10-year note yield rising 10 basis points to 3.70%
Investors should closely monitor upcoming US economic data, especially inflation and employment data. They should also pay attention to statements from Fed members about monetary policy.
Other currencies
The euro fell 0.23% against the dollar to US$1.1334. The euro has been pressured by concerns about slowing economic growth in the region.
The Japanese yen fell 0.15% against the dollar to US$132.85. The Bank of Japan (BoJ) kept its ultra-accommodative monetary policy on Wednesday, which weighed on the Japanese currency.
Commodities
Oil prices rose on Wednesday, with investors focusing on the prospect of tighter supply due to sanctions against Russia. Brent crude rose 2.2% to US$93.13 a barrel.
Gold fell 0.4% to US$1,840.40 an ounce. The precious metal is generally seen as a safe haven in times of economic uncertainty, but expectations of rising US interest rates weighed on the gold price.
Market outlook
The US dollar is expected to continue to strengthen in the short term, with investors focused on inflation data and Fed monetary policy decisions. The US currency may face some pressure in the long term if the US economy starts to slow down.