Peak Pandemic and Inevitable Rising Inflation | Traders must pay attention.
The Case for Mighty U.S. Dollar
As expected, we are experiencing an influx of ‘endemic’, and Covid is on the verge of disappearing from the news.
Numerous good achievements, including the permanent abolition of restrictions and the construction of a completely open, no-test, no-restriction, and no-tracking Covid. This will be just another flu in the healthcare system.
With record U.S. inflation, the market is not in hurry to buy USD. The less aggressive Jerome Powell in the testimony yesterday providing slight risk-on for the market, as stock rebound, Bitcoin recovering, and so gold keep grinding up. US 10y drop at the CPI release but manage to get back into 1.730%.
There is a potential that USD will continue to be weak in the short term period. But we will be very cautious and still favor for strong USD into March. With the tight labor market, no matter what, inflation will keep rising and will be rising even more as pandemics fades away. And the March hike rate seems impossible to ignore.
To be fair we also admit that there is counter tendency for our thesis. It is next month soft reading on employment, inflation and more less hawkish Federal Reserve.
This is how the dollar tends to behave the day before and after the rate hike:
We post our suspicion before Jerome Powell’s testimony here, which is proved to be correct. The media were really boosting the hike expectation and the danger of inflation, but at the end of the day Jerome deliver less hawkish/aggressive testimony, USD getting squeezed, Stocks rose, and BTC recovering the big plunge.
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