Early on Friday, the US dollar continues to trade under pressure, unaffected by the strong CPI report release in the previous session, and also keeps other major currency pairs trading range-bound as a result. At the time of writing, the US dollar index DXY is trading around 90.13.
The dollar started Friday on a slightly bearish note, despite the CPI for May coming in at 0.6%. Even though consumer prices did rise sharply last month, markets are now more convinced about the Fed’s stance that inflationary pressures are likely to be temporary, which in turn indicates that the central bank could continue to remain dovish for longer.
The US CPI report which was released on Thursday revealed a rise for the fourth consecutive month, coming in at 0.6% vs. economists’ forecast for a 0.5% increase instead. Meanwhile, inflation across the US soared to 5% YoY in May from 4.2% in April – touching the highest level seen since 2008. The core CPI, which excludes volatile food and energy costs, was also up by 3.8% YoY in May from 3% in April.
However, the US dollar index experienced a slight dip in value immediately after these figures came out as traders were convinced that the effect of high inflation would be short-lived and would not require intervention by the central bank. The reinforcement of the Fed’s dovish stance weakens the appeal of the greenback among investors even as the global economic recovery picks up pace.