US Inflation Climbs To 17-Year High - What Does It Mean For The Dollar?
The consumer price index rose 0.8 percent in July, much more than expected. Moreover, according to the Labor Department, increases went beyond food and fuel since core prices rose 0.3 percent in July. This brings the annual headline inflation to 5.6 percent, the highest in more than 17 years.
Following the release of these numbers, 10-year note yields rose to 3.95 percent and futures on the S&P 500 Stock Index dropped 0.4 percent to 1,279.70. Inflation is one of the most important indicators used by central banks to make interest rate decisions and since yield differentials have been the main drivers behind many trends in the currency market, inflation indicators also matter for the forex trader. Currently, the U.S. dollar offers negative interest rates when adjusted by inflation and the U.S. Federal Reserve could be pressured to increase rates faster than traders had previously expected.
For more, please read our special report on why inflation matters to the Fed? which includes our forecast for the U.S. dollar.
Written by Antonio Sousa, Chief Strategist
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