The US dollar index (DXY) retreated on Thursday as investors reflected reacted to the latest inflation data. It is trading at $95.60, which is about 1.90% below the highest level this year.
US inflation soared in January
The US inflation jumped sharply in January, causing many analysts to worry about a more aggressive Federal Reserve.
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According to the Bureau of Labor Statistics, the headline consumer inflation rose to 7.5% in January, the highest level since 1980s. Excluding the volatile food and energy prices, the core CPI jumped to 6%. Still, analysts expect that inflation will keep rising in the coming months as oil and gas prices soar.
Consumer prices have jumped in the past few months because of the rising crude oil and natural gas prices. Crude oil has jumped to the highest level in over 7 years. The West Texas Intermediate (WTI) has risen from $-38 in 2020 to $90.
Additionally, the supply chain challenges have also had an impact on inflation. Many companies are lacking important parts, which has pushed their prices higher. For example, this week, Toyota lamented about the impact of the part shortage when it published weak results.
Excluding food and energy, economists expect the data to show that inflation rose from 5.0% in December to 5.3% in January.
These numbers will be important for the US dollar index because they come a few days after the country published the latest non-farm payrolls data. The numbers revealed that the economy added 550k+ jobs in December and 467K in January.
Therefore, with inflation rising, and with the unemployment rate falling, analysts believe that the Federal Reserve will embrace a more hawkish tone in its March meeting. Some expect that it will start the hiking process with a giant 50 basis point hike.
US dollar index forecast
The DXY index declined slightly even after the latest American inflation data It is trading at $95.88, where it has been in the past few days. This price is slightly below the 25-day and 50-day moving averages while the Relative Strength Index has been moving sideways. At the same time, the Average True Range (ATR) indicator has been falling.
Therefore, there is a likelihood that the dollar index will break out lower after the inflation data. If this happens, the next key support level to watch will be at $95.10.
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Source: https://invezz.com/news/2022/02/10/us-dollar-index-dxy-analysis-after-the-strong-inflation-data/