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FOREX-Dollar struggles to hold gains after U.S. reports jump in inflation

ForexMay 12, 2021 22:20
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© Reuters.

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

(New throughout)
By Kate Duguid
NEW YORK, May 12 (Reuters) - The U.S. dollar was volatile on
Wednesday morning after inflation data showed a surge in
consumer prices in April, as it struggled to hold the gains it
initially notched on the data release.
The dollar index =USD , which measures the U.S. currency
against a basket of rivals, was last up 0.25% on the day to
90.437, having risen as high as 90.665 immediately following the
consumer price index report. Rising prices typically strengthen
the dollar because the market believes the Federal Reserve will
raise interest rates to quell inflation. But Fed Chair Jerome
Powell has pledged to keep rates anchored and to allow inflation
to run higher for a period.
The Labor Department report on Wednesday showed U.S.
consumer prices increased more than expected as booming demand
in the reopening economy pushed against supply constraints. The
consumer price index jumped 0.8% last month versus the 0.2%
forecast by economists polled by Reuters. The so-called core
CPI, which excludes the volatile food and energy components,
rose 0.9% versus the 0.3% forecast. "The dollar is really going to struggle to hold onto gains,"
said Mazen Issa, senior foreign exchange strategist at TD
Securities.
In addition to base-year effects, which Issa believes will
peak in May, "The surge in prices you see in the CPI report are
also a reflection of reopening pressures. Those should be
transitory in nature. The old adage of - one data point doesn't
make a trend - applies here."
The boomeranging dollar pulled other G10 currencies with it,
ultimately leaving the euro EUR=EBS 0.42% weaker at $1.210.
The single currency on Tuesday had hit a 2-1/2 month high. The
Japanese yen JPY=D3 was 0.54% weaker on the day at 109.225 and
the British pound GBP=D3 was modestly weaker, down 0.14% to
$1.412.
Currency markets this week have been soothed by repeated
promises of patience from Fed speakers. St. Louis Federal
Reserve President James Bullard said on Tuesday he expects
inflation could stay as high as 2.5% next year, while Fed
Governor Lael Brainard said weak labor data last week shows the
recovery has a long way to run.
"The Fed has made it clear in no uncertain terms that they
intend to look through transitory inflation factors and they are
not perturbed by these moves," said Issa.
In the digital space, cryptocurrency ether ETH=BTSP was
roughly 2.93% higher on the day, having backed off a record
level of $4,372.35 set earlier in the day.


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FOREX-Dollar struggles to hold gains after U.S. reports jump in inflation
 

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