U.S Dollar Maintains Optimism, Stocks Fall on the Back of Inflation Data

The strongest currencies are the U.S dollar and the Euro, followed by the Canadian dollar. With another round of rising yields, global equities are under selling pressure today. Germany’s 10-year yield, in particular, soared past the -0.1 percent handle, reaching its highest level since mid-2019. The development came after the UK recorded higher-than-expected inflation, which was followed by the CPI in Canada. For the time being, the New Zealand Dollar and Australian Dollar are the weakest currencies, preceded by the Swiss Franc. 

Canada CPI surged to 3.4 percent YoY in April, up from March’s 2.2 percent YoY, above the expectation of 3.2 percent YoY. Statistics Canada said that “a significant proportion of this increase was attributable to a steep decline in prices in April 2020, as the monthly CPI rose 0.5 percent in April 2021”. CPI rose 1.6 percent YoY, up from 1.1 percent YoY, except energy.

CPI common rose to 1.7 percent YoY, matching forecasts, up from 1.5 percent YoY. CPI median increased to 2.3 percent year over year, up from 2.1 percent year over year, exceeding expectations of 2.1 percent year over year. The trimmed CPI increased to 2.3 percent YoY, up from 2.2 percent YoY, which was in line with expectations.

In April, the Eurozone CPI was finalized at 1.6 percent YoY, up from 1.3 percent YoY in March. The core CPI was set at 0.7 percent year over year. Energy (+0.96 percentage points, pp) contributed the most to annual euro area inflation, followed by utilities (+0.37 pp), food, alcohol, and tobacco (+0.16 pp), and non-energy consumer products (+0.12 pp).

The EU CPI was finalized at 2.0 percent year over year, up from 1.7 percent in March. Greece (-1.1 percent), Portugal (-0.1 percent), and Malta had the lowest annual prices (0.1 percent ). Hungary (5.2 percent), Poland (5.1 percent), and Luxembourg (5.1 percent) had the highest annual rates (3.3 percent ). Annual inflation decreased in three Member States, remained steady in one, and increased in twenty-three.

U.S Dollar Maintains Optimism With DXY in Positive Territory

On Wednesday, as the U.S dollar maintains optimism the US Dollar Index (DXY), which measures the greenback against a basket of major currencies, remained in the positive territory near 90.00. The revival of risk-off sentiment, combined with inflation fears and higher US yields, reignited interest in the dollar as a safe-haven asset.

Despite US yields’ reluctance to grind lower, the index has completely faded the rally seen in March and has returned to levels below the psychological 90.00 regions. Looking at the bigger picture, market participants seem to be taking a pessimistic view of the currency.

This perception has been compounded in the aftermath of April’s payrolls, which has harmed optimism around the US economy’s impending complete re-opening, which is in turn supported by the unabated strength in domestic fundamentals, the strong vaccine rollout, and the revival of market chatter about an expected tapering.