By Yasin Ebrahim
Investing.com – The dollar is set for a second weekly gain after rallying on Friday, on strong labor market data, but economists suggest the greenback’s resurgence will be limited as low inflation will persist.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.35% to 91.96.
The U.S. economy created 379,000 jobs last month, well above economists’ consensus forecast of 182,000, with the unemployment rate falling to 6.2% from 6.3%, underpinned by easing Covid-19 restrictions and a ramp-up in vaccine distribution.
But a rapidly improving labor market, however, doesn’t necessarily translate into stronger inflation, which will likely keep the Fed on pause, stifling the dollar’s momentum.
“The USD appreciation potential remains limited for the time being […] as it is inflation that will determine when the US Federal Reserve will consider raising interest rates,” Commerzbank (DE:CBKG) said. “[It] is likely to be a long time before the Fed is satisfied with the inflation trend, which is why we do not forecast any interest rate hikes within our forecast horizon (i.e. until the end of 2022) and thus also no USD appreciation trend.”
Commerzbank’s remarks echoed that of the Fed chairman Jerome Powell who downplayed the risk of a sustained uptick in inflation, and reiterated that current monetary policy measures are appropriate.
“There’s good reason to think we’ll begin to make more progress. But even if it happens, it’s likely to take some time to achieve substantial further progress, or interest rates to raise interest rates above zero,” Powell said on Thursday.
Dollar Rises, Set for Two-Week Gain, But Analysts See Obstacles Ahead
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