DXY: Dollar index tilts higher as US inflation jumps to 2008 high

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on Jun 10, 2021
Updated: Jun 11, 2021
  • The US dollar index tilted higher after the latest US inflation data.
  • The headline US CPI rose by 5% while core CPI rose by 3.2%.
  • The index also reacted to the latest ECB interest rate decision.

The US dollar index (DXY) rose slightly after the relatively impressive US consumer price index (CPI) data. The index rose by 0.10% to $90.21.

US consumer inflation

Everything has gotten pricey in the United States. According to the US statistics agency, the CPI rose by 0.6% in May on a month-on-month basis. This increase was less than the previous increase of 0.8%. On a year-on-year basis, the CPI rose by 5%, an increase from the previous in 4.2%. The YoY was this strong because consumer prices declined sharply at the onset of the pandemic.

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Meanwhile, core CPI that excludes oil and food prices, rose by 0.7% in May after rising by 0.9% in April. Subsequently, the core CPI rose by 3.8% in May, higher than the previous increase of 3.0%.

The rising inflation is mostly because the US economy is doing well as many states reopens. Further, commodity prices have risen substantially. For example, in May, gasoline prices in some states rose after the Colonial Pipeline hack. At the same time, the price of most commodities like lumber, palladium, and iron ore have risen strongly.

The US dollar index also reacted to the latest initial jobless claims numbers from the US. According to the Bureau of Labour Statistics (BLS), more than 376k people filed for initial unemployment benefits. This was a smaller increase than the previous week’s increase of 385k. The continuing claims fell from 3.771k in the previous week to 3.499k. 

These numbers show that the US labour force is tightening while inflation is rising. Still, the Fed has insisted that this trend is transitory and that it will leave its policies intact for a while.

The US dollar index is also being affected by the performance of the euro after the European Central Bank decision. The bank also left interest rate and quantitative easing policies intact. The euro is the biggest constitient of the DXY.

US dollar index technical analysis

The four-hour chart shows that the US dollar index was little changed after the latest US consumer inflation data. It is trading at 90.18, where it has been in the past few sessions. The price is slightly above the ascending blue trendline and the 25-day and 15-day moving average. It is also between the rising channel shown in blue. Therefore, the index will likely remain rangebound as investors wait for more directions from the Federal Reserve.

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