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US Dollar Strengthens As Inflation Pressures Remain in Check

November 9, 2018 at 15:24 by Andrew Moran

Some USD bills and US cent coinsThe US dollar is strengthening at the end of the trading week, buoyed by new economic data that shows inflation pressures remain in check. The greenback further accelerated on a hawkish central bank that is set to raise interest rates next month. The currency’s gains were capped by retreating Treasury yields.

According to the Bureau of Labor Statistics (BLS), US wholesale prices rose 0.6% in October, the largest increase since 2012, higher than market forecasts of 0.2%. The producer price index (PPI) climbed 2.9% in the 12 months ending in October, up from 2.6% in the previous month. However, the PPI is still lower than the seven-year high of 3.3% that was reached this past summer.

The core PPI, excluding food, gasoline, and chemicals, jumped a tepid 0.2%.

While wholesale inflation came in hotter than expected, analysts agree that inflation is in check. This would give the Federal Reserve ammunition to tighten monetary policy and move ahead with rate hikes.

Fed Chair Jerome Powell did not raise rates at the end of this month’s two-day Federal Open Market Committee (FOMC) policy meeting, but CME Group FedWatch tool data suggests most of the market expects a December rate hike, the fourth one in 2018. The Fed has already told the market that it is anticipating at least three rate hikes in 2019, but it may pause these plans based on national economic performance.

Meanwhile, University of Michigan’s consumer sentiment survey dropped to 98.3 this month from 98.6 in October. Despite the second consecutive decline, sentiment is hovering around a 14-year high, supported by higher wages, a roaring labor market, and better take-home pay. Consumers are pleased with their current financial situation, but their favorable attitudes to purchasing automobiles and homes fell to five- and 10-year lows, respectively, amid rising rates.

The buck’s gains were capped by lower Treasury yields: the 30-year note fell to 3.406%, 10-year note tumbled to 3.21%, and the two-year note dipped to 2.953%.

The USD/CAD currency pair rose 0.32% to 1.3199, from an opening of 1.3156, at 13:58 GMT on Friday. The EUR/USD slipped 0.2% to 1.1342, from an opening of 1.1363.

If you have any questions, comments or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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