The US Dollar Index (DXY) is edging to a new high. With no signs of a floor in the renminbi and US inflation keeping the Federal Reserve on the front foot, the dollar bull trend looks set to continue, economists at ING report.

April inflation keeps Fed in aggressive tightening mode

“Instead of showing any real signs of slowing, yesterday's US inflation data delivered a worrying 0.6% month-on-month rise in core prices and does nothing to suggest that the Fed will be any more relaxed in the pace and endpoint of its tightening cycle. This should be a core story that supports the dollar over the coming months – i.e. that the Fed has more cause than most to get its policy rate to neutral.” 

“Until we see some major Chinese stimulus or a shift in Covid policy (very unlikely), the uncertainty over where this USD/CNY rally stops (6.80 or 7.00?) will keep commodity currencies and EM FX in general under pressure. And will keep the dollar bid.”

“On the calendar today we have US PPI, which is expected to edge lower from its 11% year-on-year peak. We doubt this will soften the dollar at all.”