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US Dollar Under Pressure as Consumers Raise Inflation Expectations

US Dollar Under Pressure as Consumers Raise Inflation Expectations

Brendan Fagan, Contributor
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Inflation Expectations, US Dollar, USD, Federal Reserve – Talking Points

  • US consumer inflation expectations rise to 6.0% in Jan. vs. 5.8% in Feb.
  • Consumers expect food and energy prices to push higher
  • US Dollar paring recent gains, trend higher remains in-tact pre-Fed
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US consumer inflation expectations rose for 12 month and 36 month timeframes, as consumers reveal they expect to pay much more for food and energy over the coming months. In a survey released by the New York Fed, 12 month inflation expectations rose to 6.0% in February, up from a reading of 5.8% in January.

3-year inflation expectations rose to 3.8%, but remained below peak readings from late last year. Consumers also said that they expect spending to increase over the next 12 months, with expected food and energy costs the most notable. Food prices are expected to rise 9.2% over the next 12 months, while gas prices are predicted to jump 8.8%

US Dollar 1 Hour Chart

Chart created with TradingView

The US Dollar continued its retreat following the release of the NY Fed survey, thanks to robust Euro strength. The US Dollar Index has found supply during multiple tests of the 99.30 area, with the most recent rejection coming during the overnight session.

With the Fed likely to raise rates at their policy meeting this week, that resistance zone could be the final hurdle for the Dollar Index before a test of 100 and what lays beyond. Downside risks do remain, as the Euro stands to benefit from any sort of de-escalation between Russia and Ukraine. But at this point, near-term risks remain skewed to the upside for the Greenback.

US Economic Calendar

Courtesy of the DailyFX Economic Calendar

Market participants now eagerly await this week’s FOMC policy meeting as the Federal Reserve looks set to move away from pandemic-era emergency policy. Forward guidance for future meetings will be watched closely, but commentary from Fed Chair Jerome Powell on the nature of inflation will also be very important.

With price increases proving to be stickier than the Fed originally anticipated, will the FOMC be more aggressive with rate hikes to tamper down the hottest inflation the US has seen in 40+ years? The onset of war and energy price spikes have also further complicated the Fed’s outlook. It sure seems that a lot rests on the shoulders of the FOMC this week.

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--- Written by Brendan Fagan, Intern

To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.