Forex Blog: Currency Trading News & Analysis.

August 29th 2006

Inflation concerns buoys USD

The last few months have witnessed a spate of bad news surrounding the USD. First, quarterly GDP data indicated the US might already have entered a period of recession, due in part to a slowing housing market. Then, the Federal Reserve Bank announced that it was halting its interest rate hikes, after raising rates 17 consecutive times. Today, monthly inflation data revealed prices are growing faster than most economists had predicted, at an annualized rate of 5.5%. The sudden jump in inflation is being attributed to you guessed it- soaring energy costs. While economists would argue inflation is bad for the USD because it erodes the currency’s real value, many traders reacted positively to the news because they believe it might drive the Fed to hike rates further. AFX News reports:

“The Fed has been focused on the consumers’ perceptions of inflation of late and this may set off some alarm bells among the FOMC hawks.”

Read More: Dollar edges up along with US inflation expectations

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Posted by Adam Kritzer | in Economic Indicators, US Dollar | No Comments »

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