The US dollar is taking a breather after hitting its highest level since March. The greenback pared its gains in the early part of the midweek trading session, buoyed by investors pouring into equities inflation slightly eased in July. Can the buck sustain the momentum amid a variety of economic variables and mounting concerns over the Delta and Lambda variants?
According to the Bureau of Labor Statistics (BLS), the US annual inflation rate stayed hot at a 13-year high of 5.4% in July for the second consecutive month. This is higher than the market forecast of 5.3%. On a month-over-month basis, the consumer price index (CPI) jumped 0.5%, the smallest gain in five months.
US inflation was driven by upward pressure in food (3.4%), new automobiles (6.4%), and shelter (2.8%). Although they fell last month, energy, used cars, apparel, and transportation services remained at their highest levels in several years.
Core inflation, which removes the volatile food and energy sectors, clocked in at 4.3% year-over-year in July. On a monthly basis, the core inflation rate rose 0.3%, lower than the median estimate of 0.4%.
Will the Federal Reserve respond to soaring inflation? Financial analysts do not think the latest data will be enough to settle the inflation debate. Seema Shah, chief strategist at Principal Global Investors, told Barron’s:
“Today’s CPI data should help assuage investor fears that the Fed is too laid-back about inflation pressures. Investors in the transitory camp will feel slightly vindicated.
While the data should reassure markets that inflation isn’t on a relentless upward trend, make no mistake – this inflation report is still hot.”
In other economic data, mortgage applications rose 2.8% in the week ending August 6, up from the 1.7% decline in the previous week. The Mortgage Bankers Association’s (MBA) 30-year mortgage rate edged up from 2.97% to 2.99%.
In response to ballooning inflation, the leading benchmark stock indices recorded modest gains. The Treasury market was mostly mixed, with the benchmark 10-year yield up 0.017% to 1.359%. The one-year bill was flat at 0.081%, while the 30-year bond jumped 0.027% to 2.011%.
The US Dollar Index (DXY), which gauges the greenback against a basket of currencies, tumbled 0.15% to 92.92, from an opening of 93.07. The index has been on a tear, gaining 0.7% over the last week and adding to its year-to-date haul of 3.32%.
The USD/CAD currency pair dipped 0.03% to 1.2516, from an opening of 1.2521, at 13:59 GMT on Wednesday. The EUR/USD advanced 0.12% to 1.1736, from an opening of 1.1718.