The US dollar is mixed following stronger-than-expected inflation numbers. While consensus estimates called for year-over-year CPI to remain at 1.9%, actual inflation rose to 2.1%. Looking at the buck against its major global peers, it is currently slightly lower against the euro and the British pound. The dollar is mostly flat against commodity currencies such as the Australian dollar and the Canadian dollar. Fears of accelerating inflation are causing bond yields to rise, as markets bet on higher future interest rates. While the fear of higher inflation and higher interest rates has caused substantial volatility in the past few weeks, we remain doubtful of inflation spiraling out of control. Commodity prices (which tend to front-run inflation) have been weakening this month. Furthermore, year-over-year inflation growth will be tough thanks to base effects (that is, inflation was relatively high at this time last year). While some believe that accelerating inflation is a good reason to buy the US dollar, we remain mostly bearish in our outlook. While our short-term outlook US dollar is neutral, our medium-term outlook remains bearish.
USD/JPY is down sharply today and currently trading above 106.90. EUR/USD is up and trading above 1.2370. The pound is up, and GBP/USD is currently above 1.3930.
Looking at US economic data this week, markets will be focused on retail sales and consumer price index figures. The monthly budget was worse than expectations. The YoY Consumer Price Index beat estimates (2.1% vs. 1.9% expected). MoM retail sales (ex-autos) were lower than estimates (0% vs. 0.4% expected). Tomorrow, we’ll see initial jobless claims and the NAHB housing market index. We’ll also see the Philly Fed manufacturing survey as well as industrial production and capacity utilization. On Friday, we’ll get housing starts and building permits. Last week, strong PMI numbers suggested a positive outlook for US growth.
As the dollar rebounds, we are upgrading the dollar to neutral in the short-term. Note that the currency is now trading within normal conditions in the short-term time frame. Our analysis is based on various technical indicators when looking at a daily chart of the US dollar index.
Thanks to recent dollar weakness, we are downgrading the US dollar to bearish. Note that the currency is trading within normal conditions. This is based on technical indicators when looking at a weekly chart.