On Friday, the dollar rose against a basket of other major currencies to an almost four-week high. This surge occurred after the release of the US Consumer Price Index (CPI) data, which showed that prices had risen higher than expectations in May. Thus, it strengthened expectations that the Fed will continue its aggressively hiking policy through September as well in order to bring down rising inflation.
Inflation Data Numbers
The release of the inflation data showed that there was an 8.6% increase in the CPI in the 12 months to May, after it had already recorded an increase in April to reach 8.3%. Economists had been hoping that the number had already hit its peak back in April, but things did not turn out so.
The CPI data was published before the expected second interest rate increase of 50 basis points by the Federal Reserve in the policy meeting scheduled for the coming Wednesday. It is expected that the central bank will up the country’s interest rate in July by half a percentage point. Since March, they have already increased the interest rate by 75 basis points.
Market analysts said that inflation had already reached a high of 40 years and there are no signs of slowing down. They said that stock markets are recording losses because Fed is now unlikely to slow down in terms of rate hikes. Meanwhile, the US dollar is climbing because of risk-off trading and policy divergence.
US Dollar Index Climbs
There was a 0.8% increase in the US Dollar Currency index on Friday, at it reached a value of 104.16. It tracks the performance of the dollar against six other currencies and was at its highest level after May 17th. As a matter of fact, it was close to its high of two decades that it had reached back in May at 105.01. The index had increased nearly 2% for the week, which makes it its best performance in the last six weeks.
The greenback had also climbed against the Swiss franc by almost 0.79% to reach 0.9881. On Friday, the US Treasury Department did not call Switzerland an outright currency manipulator, but stated that the country was exceeding its thresholds for manipulating currencies under a US trade law introduced in 2015.
While the risk appetite of investors took a hard knock due to the US inflation data, there was a trend reversal in the Australian dollar. The currency, which is usually considered sensitive, had declined by 0.58%. There was also a fall of 1.5% recorded in Sterling, as it reached $1.2315. This was because investors were on edge due to the gloomy outlook for the British economy, which led to the second week of decline for the pound.
Bitcoin also declined by 3.7% in the crypto market to reach $28.984.33. The largest digital currency in the world in terms of market value is continuously struggling, as it has found itself under selling pressure. In recent trading sessions, the country has been pushed below the $30,000 mark.
