Daily Market Recap - US Dollar continues to rise despite increasing inflationary expectations

The Dollar reached Monday its highest level in three months against several other currencies as inflationary fears in the market intensified with the green light from the U.S. Senate on a giant stimulus plan.

At around 19:50 GMT, the dollar gained 0.50% against the euro to $1.1855 per euro, after rising to $1.1915, a high since late November.

The Dollar Index (DXY), which compares the greenback to other major currencies, was also at its highest in just over three months. The rise in the buck comes after the US Senate approved Joe Biden's $1.9 trillion plan on Saturday to revive the world's first pandemic-stricken economy.

The leader of the Democrats in the House of Representatives, Steny Hoyer, indicated that the text would be examined Tuesday by the lower house before the last vote. The Democrats are expected to approve the bill quickly so that Joe Biden can enact it by March 14, before the planned suspension of unemployment benefits.

While the latest US employment data released on Friday was better than expected, some market participants are beginning to worry that the US economy may overheat in the future, leading to higher inflation.

“The prospect of a sudden rise in inflation is scaring investors, who are selling bonds,” raising rates in the bond market and making the dollar more attractive, says Ricardo Evangelista, an analyst at ActivTrades.

“The U.S. Central Bank (Fed) could be forced to act to counter inflation by tightening its monetary policy, which would benefit the dollar,” OFX analysts add.

For the time being, the Fed boss, Jerome Powell, continues to assure that full employment targeted by the institution is still a long way off and that an increase in key rates is not on the cards.

(Chart Source: Tradingview 08.03.2021)

“The market continues to believe that the Fed will raise rates over the next two years faster than the institution indicates,” however, note Deutsche Bank analysts.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.