US Dollar Rips Higher on Red-Hot Inflation, CPI at 5.4% in June

US DOLLAR PRICE OUTLOOK: JUNE’S 5.4% CPI PRINT FUELS FED TAPER RISK

• US Dollar price action rockets higher as inflation surprises to the upside
• Headline CPI came in at 5.4% largely driven by soaring used car prices
• DXY Index 0.5% stronger intraday amid intensified fears of Fed tapering

US Dollar bulls are steering the Greenback sharply higher during Tuesday morning trade. This comes in the wake of higher-than-forecast inflation data just released. The CPI report for June showed annualized headline and core inflation at 5.4% and 4.5%, which topped expectations of 4.9% and 4.0%, respectively.

Another upward surprise to inflation data seems to be fueling strength across USD price action as Fed taper bets ratchet higher. I noted in yesterday’s preview that we would likely see the broader DXY Index spike higher if headline inflation topped 5.0%.

DXY – US DOLLAR INDEX PRICE CHART: 2-HOUR TIME FRAME (04 JULY TO 13 JULY 2021)

Chart by @RichDvorakFX created using TradingView

The broad-based bid beneath the US Dollar has propelled the DXY Index about 0.5% intraday to the 92.65-price level. This is approaching nearside technical resistance posed by a descending trendline and month-to-date highs. That said, the latest CPI report detailed that prices for used cars and trucks accounted for more than one-third of the increase in headline inflation. In fact, the used cars and trucks price index soared 10.5% in June and 45.2% year-over-year.

These were the highest readings on record since CPI data was first collected back in 1953. Other primary categories that contributed to the rise in inflation were transportation services like airline fares, food, apparel, and energy costs. While the hotter-than-expected inflation reading is unsurprisingly fueling an influx of US Dollar strength due to fears of an accelerated Fed taper timeline, the central bank is likely to stick to its transitory narrative. This could see US Dollar bears look for opportunities to fade recent strength.

-- Written by Rich Dvorak, Analyst for DailyFX.com

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