Stay Ahead of the Game: U.S. Inflation Data’s Impact on the Dollar

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The dollar fell on Monday after a mixed U.S. employment report lacked directionality and as market attention shifted to inflation data from the world’s two largest economies due this week. The U.S. economy added fewer jobs than anticipated in July, according to data released on Friday, but wage gains were robust and the unemployment rate fell.

The US dollar fell to a low of one week towards a basket of currencies as an outcome of the data, but its losses had been restricted as the report pointed to a still-tight labor market, indicating that the Federal Reserve might have to hold onto higher interest rates for a while. The American currency index last seen at 101.98, the value languished close to Friday’s low of 101.73.

 Sterling increased by 0.04% to $1.2756, while the euro decreased by 0.04% slid 0.01 percent to $1.1010. According to Chris Weston, director of research at Pepperstone, the labor market shows a cooling but is not disintegrating. It is carrying out as predicted. Thursday will see the release of U.S. inflation data, with expectations that core inflation rose 4.7% annually in July.

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Global Economic Update: U.S. Growth, CPI Expectations, and China’s Inflation Rate

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Photo by: John Guccione www.advergroup.com via Pexels

Fundamentally, the U.S. still has the greatest growth, the central bank is still very data dependent, and there’s a chance this week that the CPI number will exceed expectations, so it’s difficult to envision a significant dollar pullback across currency pairs, according to Weston. On Wednesday of this week, China will release its July inflation rate, and traders will be on the lookout for additional signals of deflation in the world’s second-largest economy.

In a note, MUFG analysts predicted that the country’s headline CPI would fall in July after growth in consumer prices halted in June. Previously, the offshore yuan was slightly lower at 7.1901 per dollar. During a press conference held by the state planner on Friday, a Chinese official stated that liquidity in the country’s banking system would be maintained at a sufficient level, although investors were left wanting more due to Beijing’s sluggish rollout of economic stimulus measures.

 The U.S. dollar rose 0.1% to $0.6577, while the New Zealand dollar rose 0.1% to $1.0657. According to a summary of opinions released on Monday, the Bank of Japan discussed the growing likelihood of sustained inflation at their July meeting, with one board member stating that wages and prices could continue to rise at a rate unprecedented in the past.

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Source: Reuters, CNBC

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