The week began with the dollar continuing its upward trend from the previous week. That rebound started following a test of support at the 110.25 level, a crucial area on the chart because it had previously served as resistance. With the release of a new CPI report on Thursday morning, which revealed that US inflation remained far higher than the Fed’s 2% objective, the bullish trend carried on into the morning. Possibly unsettlingly, core CPI.
A measure of inflation that excludes food and energy reached a new high of 6.6%, surpassing the March estimate of 6.5%. Hope that inflation was slowing was growing after a few months of lower core CPI following that earlier high in March, and this truly seemed to feed into the same “transitory” narrative that was peddled by the Fed last year.
The United States’ inflation is not very cyclical. The immediate move in the stock market was severe, pushing the Nasdaq and S&P 500 to new two- and one-year lows, respectively.
Along with that move, the US Dollar surged, maintaining the current trend of linkage between USD strength and equity depreciation. However, prices abruptly started to drop an hour or so after the report was released.
After a bullish push was rejected following yet another robust inflation print, the US Dollar had a wild week. Following long wicks on both sides of the issue over the previous two weeks, the net was a spinning top for USD price movement last week.
There are currently no indications that the Fed would slow down, but the USD’s failure to reach a new high has many wondering if it has peaked or if a pivot is imminent.
The USD is a global safe haven and one of the highest yielding currencies, providing the underlying support for the positive trend. Timing is currently the key concern for near-term strategy.
