The U.S. dollar depreciated across the board versus major pairs despite consumer prices rising more than expected. Inflation anxiety had triggered a sell-off in global stock markets with the Fed expected to ramp up their interest rate hike path yet the dollar did not benefit as higher rates have already been priced in by the market.
As we are heading towards the weekend, the dollar is beginning to come back to life again. A lot of investors and analysts were left scratching their heads after Wednesday’s dramatic moves in the markets as dollar reversed earlier gains to head lower despite the release of stronger-than-expected CPI inflation data. The greenback extended its losses on Thursday thanks to momentum selling, before bouncing back today.
It has been a painful week of trading for the dollar. The Greenback has essentially reversed its recovery from the previous two trading weeks, to return back toward levels not seen since December 2014.
After months of ongoing speculation, the overnight climax with Jacob Zuma resigning from his position as President of South Africa has lifted the South African rand to its highest level since March 2015.
After last week’s big drops in the equity markets, things have definitely calmed down. The major indices across Europe have started the day positively, following a positive close on Wall Street the day before.
After a year of record closing highs and little to no volatility, it was expected that the stock market would need to blow off some steam. Last Monday, the CBOE Volatility Index, or VIX, surged nearly 116%, its biggest one-day increase since at least 2000.
The biggest single event of the week is the release of U.S Consumer Price Index data at 7:30 am CT Wednesday. The Core CPI read, which excludes food and energy, may not be known as the Federal Reserve’s preferred inflation gauge but it is arguably the most important. December’s read in January was a bright spot with a month over month increase of 0.3%.
The U.S. dollar had its strongest week against major currency pairs in 12 months. Even as the United States is suffering a bout of political uncertainty, the dollar became a safe haven as stocks and bonds saw massive moves this week. The signing of a federal budget by U.S. President Donald Trump boosted the dollar ahead of the release of retail sales and inflation data next week. Central banks are moving away from record low interest rates around the globe.