The Dollar index touched 96.40 on Tuesday, with inflation surging ahead to three-decade highs and the re-nomination of Jerome Powell as Fed Chairman.
In the past 12 months, inflation increased by 6.2% in the US. It is the highest in three decades.
US Dollar Index at 16-Month High
The US Dollar Index, DXY, which measures the currency against a basket of major currencies, rose to 16-month highs, to levels last seen in July 2020 with surging inflation and the re-nomination of Jerome Powell as Chairman of the Federal Reserve.
The US Dollar crossed the psychological barrier at 94.50, which was the highest level this year. Once it broke past this level, it is on a steady increase.
The US Dollar moves higher on expectations that the Fed will announce a hike in interest rates earlier, with high inflation. Surging energy prices and supply-chain disruptions add pressure to the rising inflation in the country.
Inflation Rate Highest in Three Decades
Consumer prices are at the highest level in October, according to reports from the Labor Department. Inflation rose to the highest in 30 years at 6.2%, even though analysts warned about the surging prices. The rising inflation brought the US Dollar Index higher.
Higher inflation adds pressure on the Biden administration. Supply chain disruptions are increasing with greater demand. Energy, food, and fuel prices are surging higher. The Biden administration comes under heavy criticism amid high consumer prices.
Inflation is moving towards a 30-year high. An increase in consumer prices to 6.2% indicates a rise in prices. Inflation is not transitory, as the Fed claims, and is a source of worry to officials. The effects of low interest add pressure to the rising inflation. The debt burden has gone up.
Supply-chain restrictions are driving inflation higher, say analysts. Earlier, the Fed reported that inflation is transitory, but inflation is here to stay. Inflation is at multi-year highs, with expenses increasing.
Sectors Affected by High Inflation
Fuel and transport are the top sectors hit by inflation. Gasoline prices gained more than a dollar per gallon from the same time last year. Heating bills will increase further during the holiday season due to the cold season. The semiconductor shortage has hit the vehicle industry, and production has come down. The need for used cars is on the increase. High inflation is depleting consumer savings. People have to spend more on daily expenses, which are eating into their revenue.
Data from the Bureau of Labor Statistics claims that new vehicles, used cars, energy, food, and shelter indexes are climbing higher. The increase is broad-based, states the report. Consumer demand shows a sharp increase as business activities resume their normal tempo. But supply restrictions and high demand add to pressure on prices.
Rising inflation hits consumer spending. Most Americans show their concern over the rising inflation in the US. They have to cut down on expenses on clothing, dining out, and buying electronic gadgets.
Experts predict that inflation will increase further in 2022.
Jerome Powell Re-nominated as Fed Chairman
Jeremy Powell gets re-nominated as the Chairman of the Federal Reserve by President Biden.
Biden praised Powell for his steady and decisive leadership. Powell received praise for his fine leadership in managing the country during the pandemic.
However, Powell got criticized for not bringing inflation under control. Climate change and job issues continue to weaken the country say, critics. Dr. Lael Brainard was nominated as vice-chair.
Policymakers have to bring a hike in interest rates to curb inflation. Expectations of an early hike in policy rates strengthens the Dollar Index.
Demand for Labor Increases Higher than Labor Supply
On the brighter side, economic activities are improving, and businesses are re-opening. Job opportunities are improving, which brings down new weekly jobless claims in the country. It is a show of economic growth in the country.
New weekly jobless claims show a steady decline. First-time unemployment claims are below the 300,000 level for the sixth week. Jobless claims show a steady move downward, indicating a good recovery in the labor market. Americans collecting unemployment checks dropped from 7.1 million to 2.1 million years on year in October. It is a positive sign for the growth in the economy, which strengthens the Dollar Index.
Labor supply is unable to meet the increasing needs of the job market. Companies are increasing wages and bonuses to induce workers to stay on the job.
In April 2020, the government brought in lockdown restrictions in which many lost their jobs. The government introduced stimulus measures to protect the people financially. The rollout of vaccines and the gradual decline in covid infections are opening up the economy. Job opportunities are increasing, and people are scrambling back to work.
The EUR/USD slid to 1.1265 with the strengthening US Dollar Index to 16-month highs.
The GBP/USD is at 1.3373, with the Dollar surging ahead.
Inflation concerns hit every country. Rising energy prices and supply-chain disruptions hinder economic progress in the European Union and the United Kingdom, weakening the Euro and the British Pound against the US Dollar.