US dollar crashes at first sign of inflation spike

The euro broke out of its three-week range against the US dollar after weakness in the United States inflation

Inflation

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates pressure from demand on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates pressure from demand on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.
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The July CPI remained stable over the month and below the consensus estimate of +0.2%. Baseline and year-over-year metrics were also lower than expected.

The Dollar fell across the board, with USD/JPY plunging 200 pips on the day. That wipes out Friday’s gain, which came on a strong non-agricultural payroll

Non-agricultural payroll

Nonfarm Payrolls (NFP) is the largest monthly economic news indicator released in the United States, usually on the first Friday of every month. Reported by the United States Bureau of Labor Statistics, the NFP measures the increase or decrease in the number of employed people over the previous month, excluding those working in agriculture and the agricultural industry. The NFP can also be called job change, and is the most anticipated monthly report. Since it is released at the beginning of every month, it usually causes huge movements in the financial markets, especially in the forex market. Traders care about NFP because job creation itself is one of the most important indicators of consumer spending, a vital barometer that underpins the nation’s economy. The NFP does not include agricultural jobs, primarily because these jobs are distinctly seasonal, which can lead to inconsistent reporting. Essentially, it represents all business employees (excluding public administration employees), private household employees and employees of non-profit organisations, accounting for around 80% of workers who contribute to GDP. Before the actual figure is released, industry experts make an educated guess of what the figure will be, known as the “expected figure” or “expected figure”. So if the actual published figure is higher than expected, then there are more people employed than initially thought, which is great news for the economy. Such a result encourages traders to invest in the US dollar, which gives it strength. Likewise, if the actual figure is lower than expected, the US dollar generally weakens. However, this is by no means a hard and fast rule, as other stories are being published at the same time, and revisions can make things extremely difficult. randomly. Oftentimes traders are seriously anticipating (or worried) about the release, with much less trading activity just before the release, often referred to as the calm before the storm, as a price squeeze sets in. Some traders actually trade these huge spikes (known as news traders), entering the market immediately after the number is released and just before the price moves. Depending on the magnitude of the divergence from the expected figure, retail news traders try to take advantage of the fact that there is guaranteed to be a huge move.

Nonfarm Payrolls (NFP) is the largest monthly economic news indicator released in the United States, usually on the first Friday of every month. Reported by the United States Bureau of Labor Statistics, the NFP measures the increase or decrease in the number of employed people over the previous month, excluding those working in agriculture and the agricultural industry. The NFP can also be called job change, and is the most anticipated monthly report. Since it is released at the beginning of every month, it usually causes huge movements in the financial markets, especially in the forex market. Traders care about NFP because job creation itself is one of the most important indicators of consumer spending, a vital barometer that underpins the nation’s economy. The NFP does not include agricultural jobs, primarily because these jobs are distinctly seasonal, which can lead to inconsistent reporting. Essentially, it represents all business employees (excluding public administration employees), private household employees and employees of non-profit organisations, accounting for around 80% of workers who contribute to GDP. Before the actual figure is released, industry experts make an educated guess of what the figure will be, known as the “expected figure” or “expected figure”. So if the actual published figure is higher than expected, then there are more people employed than initially thought, which is great news for the economy. Such a result encourages traders to invest in the US dollar, which gives it strength. Likewise, if the actual figure is lower than expected, the US dollar generally weakens. However, this is by no means a hard and fast rule, as other stories are being published at the same time, and revisions can make things extremely difficult. randomly. Oftentimes traders are seriously anticipating (or worried) about the release, with much less trading activity just before the release, often referred to as the calm before the storm, as a price squeeze sets in. Some traders actually trade these huge spikes (known as news traders), entering the market immediately after the number is released and just before the price moves. Depending on the magnitude of the divergence from the expected figure, retail news traders try to take advantage of the fact that there is guaranteed to be a huge move.
Read this term report.

The implied odds of a 75 basis point hike at the FOMC on Sept. 21 are down to 37% from 68% yesterday as the market senses a spike in inflation. We’ll have another CPI report by then, but with gasoline prices continuing to fall, there’s a good chance it will be down as well.

Along with the falling dollar, US stock futures soared with eminis up 75 points, or 1.8%.

Notably, the US dollar was curiously weak ahead of the data. Some traders noted that the White House had not announced anything in advance on the CPI. Previously, they had “prepared” the public. Ahead of the previous release, the White House said it expected the June reading to be “very high.” This time it was silence and whether it was deliberate or not, some saw it as a denunciation.

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