US Dollar: Firmer trading ahead of CPI – MUFG

The Dollar Index has regained 102.00, according to MUFG’s Lee Hardman. A US Dollar rebound has lifted the index above that level following post-election losses. With US labour market data strengthening and employment growth rising, the Federal Reserve’s attention has shifted towards upside inflation risks.

US Dollar gains as labour data strengthen

"The US dollar has continued to trade at stronger levels overnight after rebounding strongly at the end of last week. It has resulted in the dollar index rising back above the 102.00-level after hitting a low of 101.10 on 4th November just after the release of the US mid-term elections results. The US dollar has quickly reversed all of its post-election losses encouraged by the release of further evidence showing that the US labour market continues to strengthen this year."

"Overall, the report provides further evidence that the US labour market is continuing to strengthen alongside stronger economic activity in recent quarters which will encourage the Fed to tighten policy further. However, with the risk of second round inflation effects from the labour markets still appearing contained the report does not significantly increase pressure on the Fed to speed up plans for hikes helping to dampen upward pressure on US yields and the US dollar."

"Market participants and the Fed will be watching closely for evidence of spillover effects from higher energy prices in the latest US inflation data released this week."

"The US dollar appears to be running ahead of short-term yield spreads indicating that a hawkish surprise maybe required to maintain US dollar strength."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)