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Saturday, June 19, 2021

US dollar gives back all the gains ahead of Clarida

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Interesting dynamics here

EURUSD chart

The jump in used auto prices alone accounted for one-third of the shockingly large 0.9% m/m rise in core US inflation in April. That’s clearly a shortage of inventory and likely to be reversed but at the same time, every high reading on inflation lumps more pressure on the Fed to taper and to tee-up a rate hike.

The Fed’s Clarida speaks at the top of the hour on the economic outlook. It’s a text release so we won’t get anything immediately on the report but he will have a Q&A later with a moderator. His initial comments will be along the same lines as everything else we’ve heard lately and he will downplay inflation risks. That could calm the market.

I’m watching bonds closely and 5-year yields are up 3.7 bps to the high of the day at 0.84%. The FX market though is taking this in stride and after initial pops in the US dollar, it’s reversed with USD/CAD at a session low and the euro back to flat on the day.

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