October 30, 2021

US Dollar Suddenly Soaring, What's Happening?

 U.S. consumer spending rose strongly in September but was slightly limited as it was constrained by higher prices. Inflation remains hot amid shortages of motor vehicles and other goods in the face of global supply constraints.

The Commerce Department said on Friday that consumer spending, which accounts for more than two -thirds of U.S. economic activity, rose 0.6% last month. August data was revised higher with spending jumping 1.0% instead of 0.8% as previously reported.

Economists surveyed by Reuters have forecast consumer spending to rise 0.5%. The resurgence of Covid-19 cases over the summer, driven by Delta variants, manpower shortages and supply shortages has hit the supply chain.

The price index of personal consumption expenditure (PCE), excluding volatile food and energy components, rose 0.2% after gaining 0.3% in August. In the 12 months to September, the core PCE price index rose 3.6% after a similar rise in August.

The US dollar index, which measures the greenback against major currencies, traded strong by 0.60% at 93.882.

The strengthening US dollar was also driven by rising government bond yields and traders saw inflation reports could influence the decision to reduce bond purchases.

On the other hand, the Canadian currency depreciated against the US dollar following the fall in oil prices and economic growth in September remained unchanged. The euro also depreciated against the US dollar after a "dovish" report on Thursday from the ECB. The Euro was down 0.70% against the US dollar at the trading level of 1.1600.