US Dollar Rockets Higher as Inflation Spikes to 4.2% in April

US DOLLAR OUTLOOK: USD PRICE ACTION RIPPING HIGHER AS INFLATION HITS 4.2%

• US Dollar bulls send the broader DXY Index sharply higher following red-hot inflation data
• EUR/USD price action plunges 50-pips as USD/JPY spikes 35-pips in immediate response
• Federal Reserve taper talks could intensify amid evidence of price pressures rising quickly

Markets are reacting to the latest round of CPI inflation data. US Dollar volatility is accelerating as the DXY Index pushes sharply higher following hotter-than-expected inflation. Headline and core inflation crossed the wires at 4.2% and 3.0%, respectively. This topped the market forecast looking for cooler prints of 3.6% and 2.3%. The notably higher readings of inflation are helping the US Dollar strengthen as the data could complicate the dovish Fed narrative and bring forward the timeline for taper talks.

DXY – US DOLLAR INDEX PRICE CHART: ONE-HOUR TIME FRAME (07 MAY TO 12 MAY 2021)

Chart by @RichDvorakFX created using TradingView

The broader DXY Index now trades nearly 0.5% higher on the session thanks to the influx of US Dollar demand. EUR/USD dropped nearly 50-pips while USD/JPY jumped 35-pips in immediate response to the inflation data. EUR/USD and USD/JPY are the two largest components of the DXY Index with weightings of 57.6% and 13.6% respectively.

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

Connect with @RichDvorakFX on Twitter for real-time market insight