The U.S. Dollar Down on Weak Inflation and Low Demand for Safe Havens
The USD, on Feb 10, fell on weak inflation readings and decreasing demand for safe-havens. US CPI flat-lined at 1.4 percent, a percentage point below economists' forecast of 1.5 percent. Meanwhile, the core ticked lower to 1.4 from 1.6 percent. With low demand for safe-havens, USD bears flew in, pushing the greenback lower against the majors.
The market consensus is that economic factors are all lining up to improve market conditions, a positive for the U.S. economy. However, with a robust economy, investors will most likely pull their capital from safe-haven currencies and assets like the USD to high-yielding and volatile assets, especially in the stock market. Additionally, upcoming events like the passing of the $1.9 trillion stimulus package will effectively pull down the ladder from the USD for the stock and bond markets. This is because more stimulus translates to more spending. Therefore, more borrowing leads to higher yields and larger account deficits. Despite a lower reading, the buoyant market outlook and FED's money printing could see the U.S. inflation pick up from H2 2021.
Impact on the USD:
Neutral to Bearish. Traders have their focus on the stimulus package but are split on how this will impact the USD. There are opposing factions arguing for and against the USD. The argument is, the stimulus package will boost the U.S. economy but cause a reflation in other countries, opening up opportunities for better yields, contributing to a weaker USD.
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