The USD is getting a boost from high inflation concerns, with traders now looking forward to the Fed Chair’s testimony this week. Blackrock CEO is also concerned about inflation which he says “is going to be more systematically,” noting asset owners are the biggest beneficiaries of monetary policy.”
The US dollar continues to be perched above 90 since early last month, now aiming for 93 after data showed that US inflation for June is coming in hotter than expected. Just like the greenback, US Treasury yields also responded to the inflation data with a sharp rise.
US consumer prices rose by the most in 13 years last month as the economic recovery continues its momentum.
The rate of inflation in the 12 months ended in June jumped to 5.4% from 5%.
However, this is to be expected as up until recently, there was a tight lockdown in the country, and still, not everything is open or operating at a standard rate. The rapid recovery of the economy is having an unwanted side-effect, higher inflation.
Transitory or Not?
In June, the cost of living jumped by the most significant amount, 0.9%, more than expected, since 2008 as inflation spread more broadly through the US economy, raising questions whether this spike in prices will subside as quickly as the central bank is predicting.
While the cost of used cars accounted for over one-third of this increase, prices for food, energy, clothing, hotels, and plane tickets also rose sharply, which also fell sharply in the early stages of the coronavirus pandemic last year.
Another measure of inflation that omits volatile food and energy also surged 0.9% in June, with the 12-month rate increasing to 4.5% to stand at a 29-year high.
While the component not associated with the used car market being twice as large, used car prices should also “probably be seen as some sort of bellwether in this case, instead of something to be ignored,” wrote analyst Mati Greenspan in his daily newsletter Quantum Economics.
Blackrock CEO Larry Fink is also concerned about inflation. “It is my view that inflation is going to be more systematical. I believe it is a fundamental, foundational change in how we navigate economic policy,” he said in an interview with CNBC.
He further noted that with interest rates low, savers are getting slammed while “asset owners are the biggest beneficiaries of monetary policy.”
After yesterday’s inflation print at 5.4%, the forward looking measures jumped. Market now believes inflation for the next 12 months will be 3.6%. This is pretty high compared to recent years and it will only be revised upwards. #gold #Bitcoin pic.twitter.com/iB19DLVa5w
— Charlie Morris (@AtlasPulse) July 14, 2021
Traders are now looking forward to Federal Reserve Chairman Jerome Powell’s testimony before Congress on Wednesday and Thursday for any signals on potential tapering. Fed officials first made a surprise shift in tone last month about the possibility of US stimulus withdrawal that boosted the dollar in recent weeks.
Powell, however, has repeatedly been stating that high inflation will be transitory as supply chains normalize and adapt.
The stock market waved off these latest figures, with the S&P 500 seeing a slight drop after roaring to new all-time highs on Monday. Greenspan said,
“The stocks really are in a euphoric mode right now, and investors will accept any reason to continue buying the rally.”
— Charles Edwards (@caprioleio) July 13, 2021
Cryptocurrencies meanwhile remain on the back foot since late May when they first started selling-off with the total crypto market cap now at $1.34 trillion.
This week, the crypto market is experiencing losses across the board, with Bitcoin doing its thing and trading above $32,500, recovering some from its fall to $31,565 in the last 24 hours and Ether at just above $1,900 after falling to $1,860.
While down in the past two months, in the past year, when commodity prices rose between 20% to 107%, Bitcoin rallied 250%.