The U.S. dollar skyrocketed to a one-month high against a basket of major currencies on Tuesday. New data showed inflation speeding up, boosting the greenback. However, its gains were modest as investors awaited the outcome of the U.S. Federal Reserve’s two-day policy meeting. Traders hope to get hints about whether the Fed has plans to start tapering its bond purchases.
On Tuesday, data showed U.S. retail sales tumbled down more than expected in May. Meanwhile, spending rotated back to services from goods as coronavirus vaccinations allow Americans to shake off pandemic restrictions.
However, demand is so robust that it is outpacing supply, stoking inflation. Several recent readings of inflation gauges are signaling increasing price pressures.
Joe Manimbo, the senior market analyst at Western Union Business Solutions in Washington, stated that the U.S. dollar remained firm as another hot reading on rising inflation overshadowed much chillier consumer data.
According to the schedule, the Fed’s two-day meeting will end on Wednesday. The agency will issue a policy statement afterward. Thus far, Fed officials maintain their opinion that rising inflationary pressures are transitory, reiterating that ultra-easy monetary settings will stay in place for some time.
Despite the Fed’s assurances, investors are concerned that price pressure may force an earlier stimulus withdrawal. Analysts at BofA Global Research noted that even if the U.S. sustains some of the recent increase in inflation, they would argue that the Federal Reserve will react to it, supporting the dollar later this year.
How Is the Currency Trading Now?
The dollar index traded 0.04% higher at 90.529, after soaring as high as 90.677. Meanwhile, the British pound tumbled down to a one-month low against the greenback on Tuesday. Analysts called its move the breaking of a technical level, but it did not change the bullish narrative on the Sterling thus far. Still, the pound plummeted down by 0.18% against the dollar at last.