US Dollar Fundamental Forecast: US Dollar Eyes Inflation Data After NFP Boost

US Dollar Index Chart

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US Dollar Fundamental Forecast: Bullish

  • Federal Reserve Chair Powell unfazed by Treasury market volatility.
  • US Dollar boosted by blowout NFP as US economic outlook strengthens.
  • US Inflation data on tap for next week may direct US Dollar’s path ahead.

The US Dollar moved higher after an impressive Non-farm payrolls report for February crossed the wires Friday morning at 379 thousand versus an expected 182 thousand, according to the DailyFX Economic Calendar.

US Dollar strength accelerated following the report, reflecting the economy’s strength amid a reopening as vaccination distribution accelerates. Economic data in the US has been consistently beating expectations to the upsides, evidenced through the US Citi Economic Surprise Index.

US Dollar vs citi economic surprise index

Treasury yields marched higher following the report, but subsequently faded lower. Still, the Treasury curve has steepened significantly as economic conditions improve and new Treasury issuances to fund stimulus measures are expected. The US Dollar has started to track higher with rising yields more recently, and that trend may continue as the outlook for the US economy brightens.

Federal Reserve Chair Jerome Powell this week appeared unconcerned with bond market volatility. However, Governor Lael Brainard stated that she had her eye on developments in the bond market and is “paying close attention.” The benchmark 10-year yield slipped lower after the jobs report, although it remains near multi-month highs.

Next week may provide further direction for the Greenback, with US inflation data on tap. Analysts expect inflation on a year-over-year basis to increase to 1.7% from the prior 1.4%, although core inflation – which excludes energy prices and other volatile items – is forecast to remain at 1.4%. The rise in crude oil and other energy commodities is one reason analysts are expecting the higher figure.

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