USD seems headed for a second day of losses as Fed officials express comfort with higher inflation

USD seems headed for a second day of losses as Fed officials express comfort with higher inflation

Investors are content to buy equities and sell US Treasuries as long as the Federal Reserve continues to buy bonds and keep interest rates near zero. The US dollar is weaker this morning in choppy trading despite US strong economic data. Commodity currencies are stronger as the Chinese renminbi hit its' strongest levels in 3 years. The euro hits a 4-month high on strong business confidence data out of Germany.

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  • FX Rates
    May 25, 2021

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  • USD

    The dollar is slightly weaker in morning trading despite US house price data showing the largest increase (+13% YoY) since 2005. Since peaking at 1.74% on March 31st, the US 10yr Treasury has now fallen below 1.60% after Fed officials stressed inflationary pressures are transitory and tapering is not yet being discussed.

    Consumer confidence data due out later this morning.


    The pound gave up earlier gains as concerns linger regarding Covid spread. The Bank of England played down the risk of inflation. Governor Bailey said that the expected acceleration in prices this year will likely be temporary and one of his deputies Cunliffe said inflation will later return to the central bank’s 2% target as growth slows. Although many economists agree, market consensus now expects the central bank to raise interest rates as early as next year.  


    The euro traded higher breaking through 1.2250. The common currency will likely trade over 1.23 which was the high of January. The German Ifo Business Confidence Index for May came in better than expected. Receding Covid numbers are boosting expectations of travel this summer.

    The Canadian dollar is slightly stronger as the price of oil topped out at $66/bbl. West Texas Intermediate (WTI) has again hit a resistance at $66 which represents a high for the year.

    The Chinese renminbi strengthened to levels not seen since mid-2018 causing state-owned banks to buy US dollars to slow the renminbi’s appreciation. FX traders see little reason for the renminbi to weaken with the Chinese economy strengthening.

    The Japanese yen weakened vs. the US dollar on concerns Covid’s impact on the Olympics may hurt the Japanese economy.

    The Australian dollar gained on higher iron ore prices and the increase in the renminbi.

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Peter Compton
Peter Compton

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