DXY: US inflation hit 40-year highs


According to the US Bureau of Labor Statistics, published last Wednesday, US inflation jumped in June to the highest level in the last 40 years, amounting to 9.1% (year-on-year) against 8.6% in May and market expectations of 8.8%. At the same time, monthly inflation accelerated from 1.0% to 1.3%. The core consumer price index, which does not take into account volatile food and energy prices, although it fell in June, still exceeded the economists' forecast and came out with a value of 5.9% (against 6.0% in May).

Such a sharp increase in inflation, despite the actions of the Fed, strengthened the expectations of market participants regarding the more rapid tightening of the monetary policy of the US central bank, and as a result, the dollar continues to strengthen, well ahead of its main competitors in the foreign exchange market.

DXY Chart

The DXY dollar index broke through the 108.00 mark at the beginning of this week, and today, dollar buyers on strong US inflation indicators forced the DXY to renew the local multi-year high above 108.45.

Now, practically, none of the economists doubts that the interest rate will be raised at the FRS meeting on July 26-27 by 75 basis points. Moreover, the likelihood that the Fed will raise the interest rate at once by 0.1% has increased, taking into account yesterday's inflation statistics, especially since yesterday the Bank of Canada had already taken this path (more aggressively raising interest rates), unexpectedly raising its interest rate by 100 bp to 2.5%.

In anticipation of more aggressive actions on the part of the Fed's leadership in relation to curbing inflation, market participants are more actively buying the rising dollar.

DXY D Chart

Considering also the long-term uptrend in DXY, in which it has been since March 2011, the breakdown of today's local high of 108.47 will be a signal for building up long positions in DXY futures with the prospect of growth towards multi-year highs of 121.29 and 129.05, reached, respectively, in June 2001 and in November 1985.

DXY W Chart