Forex Today: US Inflation Hits 8.5%

US inflation data released yesterday showed an annualized rate of 8.5%, the highest in 40 years, but expectations were not exceeded for the first time in months.

  • Markets were dominated by yesterday’s US CPI (inflation) data release, which came in as expected, showing an annualized inflation rate of 8.5% after printing a month-on-month increase of 1.2%. This has increased the prospect of a rate hike by the Federal Reserve at its next meeting, but not dramatically so, as core CPI undershot and a majority of the inflationary increase was composed of rising energy costs. There is optimism by some that US inflation may have reached its peak. Markets responded to the data by sending the US Dollar, Gold, and agricultural commodities higher and stocks lower.

  • The US Dollar closed at multi-year new highs against the Japanese Yen and the Euro. Forex traders should consider aligning their trading with this long-term trend and looking for long USD/JPY and short EUR/USD trades, as both currency pairs are showing breakouts with momentum, especially the USD/JPY.
  • The Reserve Bank of New Zealand earlier made its biggest rate hike in 22 years by raising its official cash rate by 0.50% to 1.50%, the highest rate of any major currency, surprising analysts who had expected a hike of only 0.25%. The move was clearly aimed at aggressively combating rising inflation, with the accompanying statement saying that the Bank is acting to stop short-term consumer inflation becoming embedded into long-term inflation expectations. Following the rate hike, the New Zealand Dollar has lost some value against most other currencies.
  • The Forex market is dominated by the continuing bullish trend in the US Dollar, which closed at new long-term highs yesterday against both the Japanese Yen and the Euro. The USD/JPY currency pair is looking especially bullish, with the price only 10 pips off the 6.5 year high at ¥125.77 and rising. The Japanese Yen remains the weakest major currency as the Bank of Japan is following a monetary policy which diverges from global hawkish stances.
  • Agricultural commodities mostly rose during yesterday’s session, with corn reaching new highs.
  • Daily new coronavirus cases globally fell last week for the third consecutive week.
  • It is estimated that 64.8% of the world’s population has received at least one dose of a coronavirus vaccination, while approximately 6.3% of the global population is known to have contracted the virus at some stage.
  • Total confirmed new coronavirus cases worldwide stand at over 501.1 million with an average case fatality rate of 1.24%.
  • The rate of new coronavirus infections appears to now be increasing only in Barbados, Bhutan, China,  and Taiwan.
  • A hard testing lockdown continues into its third week in Shanghai, China but will begin to be eased in some areas. It is causing some supply chain disruption globally.
Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.
Learn more from Adam in his free lessons at FX Academy

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