The spike in US inflation data ends up spurring an FX trader’s awakening

Orban caps staple food prices to fight inflation ahead of vote

A look at contract activity over a 30-minute interval shows turnover popping to levels not seen since the outbreak of the omicron variant in late November:Prior to the inflation report, a largely rudderless dollar was driven by a handful of macro-economic themes and real-money flows. The loonie and the Norwegian krone have moved back to the top of G-10 currencies amid surging oil prices, threatening a repeat of 2021’s inflation trade. The offshore yuan — a top-ten currency last year — is also showing signs of strength this week.

U.S. inflation data has set off a year-to-date high in speculative currency exchanging after a tranquil beginning to 2022. Volumes in euro prospects bounced once the normal money topped 1.14 versus the dollar without precedent for almost two months. Outside of Wednesday’s selloff, a few new themes are burdening the greenback this year. They include a turn toward European value and bank shares, both promoted by U.S. venture banks. The pound, specifically, has moved into second spot among G-10 performers as product makers and bank shares drive the U.K’s. FTSE index up over 2% year-to-date.

Meantime, a move away from expensive U.S. assets on fears inflation will force Fed tightening is taking its toll on the greenback. The Bloomberg dollar index has fallen below an ascending trendline from the June low and its 100-day moving average at 1166.35. A further retracement of last year’s gains would send the index to the 61.8% Fibonacci level at 1162.13.

Given the sensitivity of assets and the dollar to inflation readings, any sign price pressures may be peaking — including a drop in crude oil — could ease downward pressure. December U.S. producer price data is due Thursday; analysts see core prices rising 0.5% on the month.

This was a post on Bloomberg’s Markets Live blog. The observations are those of the blogger and not intended as investment advice. For more markets analysis, go to MLIV.

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