US Dollar Bumped Increased by Hawkish Fed and Blistering PPI. Increased USD?

US Dollar, Federal Reserve, PPI, DXY Index, Treasury Yields – Talking Points

• The US Dollar continued strengthening at this time after Treasury yields soared
• PPI information reveals an financial system with value pressures constructing once more
• The Fed reminded markets of potential outsized hikes. Where to for USD?

The US Dollar jumped increased in a single day after two Federal Reserve audio system talked up the prospect of fifty foundation level hikes and a enterprise inflation gauge re-accelerated.

Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard each indicated that they’d contemplate a 50 bp elevate of the Fed funds goal price on the assembly in late March.

Both board members beforehand made their hawkish stance well-known. The swaps and futures markets have priced in solely 25 bp on the subsequent two conferences.

The producer value index (PPI) information got here in sizzling for January at 0.7% month-on-month, above the 0.4% anticipated and -0.5% beforehand. This gave an annual print of 6.0% year-on-year, surpassing the 5.4% forecast.

Similarly, the core measure additionally picked up steam, with PPI ex-food and vitality growing by 0.5% final month in opposition to 0.3% anticipated and 0.1% prior. The warmth within the PPI numbers comes on the heels of CPI information seen earlier within the week that additionally re-accelerated in January.

Housing begins and constructing permits had been a slight miss, coming in at 1309k and 1339k respectively for January. Initial jobless claims had been barely much less at 194k for the week ending February eleventh, whereas persevering with claims had been in keeping with expectations at 1696k for the week ending February 4th.

The stable information noticed Treasury yields as soon as once more transfer increased throughout all tenures with the again finish seeing probably the most good points. This noticed the intently watched 2s 10s yield differential contract to -0.78% after buying and selling at -0.88% this week, a stage not seen because the early Eighties.

The increased yields appeared to underpin the buck because it made six-week highs in EUR/USD, USD/JPY, GBP/USD, AUD/USD and NZD/USD, in addition to the DXY index.

Later at this time we’ll hear from Richmond Fed President Thomas Barkin and Federal Reserve Governor Michelle Bowman. The diploma of their hawkishness shall be intently scrutinised by the market and will transfer the ‘big dollar’.

DXY, (USD) INDEX, 2-YEAR AND 10-YEAR TRESUTIES AND 2s 10s CURVE

Chart created in Buying and sellingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel through @DanMcCathyFX on Twitter