USD Rips Higher, Boost from Inflation Expectations

All indicators point to a bottoming greenback. The resulting rally of the last few days and, most importantly, buyers shaking off news of a weaker than expected labor market coupled with expectations of higher inflation in the U.S. following cues of midweek's Retail Sales is injecting momentum to USD bulls. Retailers stepped up in January 2021, spending and pushing sales for the first time in four months. It is supportive of an economy that requires a delicate balancing act lest it falls into reflation.

Details:

Bullish winds are more robust than bears, neutralizing news of more weekly unemployment claims. Trader focus now is on inflation as coronavirus charts show that infection rates and deaths are decreasing. The unprecedented levels of financial support to the U.S. economy and low-interest rates may spark inflation, a positive for the USD. Policy officials, nonetheless, expect this consumer price expansion to be snap and short-lived. However, if more Americans are vaccinated, and the weather improves, people may spend more, and inflation could rise faster than anticipated. This may be the Launchpad for USD bulls expecting a firmer economy with increasing GDP.

Impact on the USD:

Bullish. The greenback is rising after months of sliding versus major currencies. The USD is strongerversus the GBP and Euro. The single economy is worried about more restrictions and worsening sentiment on economic recovery. Meanwhile, the pound may sink the BoE is mulling about negative interest rates. 

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