The US dollar is trading higher as investors take more of a cautious approach to the financial markets in the middle of the trading week. Traders are combing through the data, including consumer prices and mortgage lending, but they are also keeping an eye on the US impeachment vote. The greenback is continuing its surprisingly strong start to 2021, but can the currency keep up the momentum?

According to the Bureau of Labor Statistics (BLS), the annual Inflation rate jumped to 1.4% in December, up from 1.4% in November. The market had penciled in a reading of 1.3%. The gains were driven by increases in gasoline (8.4%) and food (0.4%). Shelter (0.1%), apparel (1.4%), and new vehicles (0.4%) also climbed last month.

On a month-to-month basis, consumer prices advanced 0.4%. The core inflation rate, which excludes volatile food and energy, rose 1.6% year-over-year in December.

In the week ending January 8, mortgage applications surged 16.7%, reports the Mortgage Bankers Association (MBA). This is up from the 1.7% boost in the previous week. The 30-year mortgage rate edged up 0.02% to 2.88% in the same week.

Could this be the beginning of surging inflation in the US? Kansas City Federal Reserve Bank President Esther George warned in prepared remarks on Tuesday that the country should get ready for inflation rising faster than expected. This, she says, could weigh on the economy.

In contrast to these sectors, price inflation for many other categories of consumption (particularly goods) has moved up, sometimes quite sharply.

Such a scenario does not suggest higher inflation is a near-term threat, but rather that inflation could approach the Committee’s average inflation objective more quickly than some might expect.

Last week, Federal Reserve Bank of St. Louis President James Bullard told reporters that Americans should get “used to” higher inflation.

The quiescence of inflation that has characterized the last decade may not be a good guide for what’s going to happen in 2021, where I would expect more volatile pricing, possibly higher inflation than we’re used to.

In addition to data, financial markets are monitoring the situation on Capitol Hill. Lawmakers are expected to vote on President Donald Trump’s second impeachment after Vice President Mike Pence rejected applying the 25th Amendment to remove him from office. The House of Representatives had voted 223–205 on a resolution to compel the vice president to invoke the 25th Amendment.

Pence wrote in a letter to Congress:

I do not believe that such a course of action is in the best interest of our nation or consistent with our Constitution. I will not now yield to efforts in the House of Representatives to play political games at a time so serious in the life of our nation.

The US bond market was mostly in the red following multiple sessions of gains. The benchmark 10-year Treasury dipped 0.029% to 1.109%. The one-year note fell 0.003% to 0.101%, while the 30-year bond shed 0.035% to 1.85%.

The US Dollar Index, which measures the greenback against a basket of currencies, continued its market-defying performance at the start of 2021. The DXY picked up 0.24% to 90.31, from an opening of 90.00. The index has surprisingly risen 0.44% in the first two weeks of trading.

The USD/CAD currency pair advanced 0.24% to 1.2744, from an opening of 1.2710, at 12:50 GMT on Wednesday. The EUR/USD tumbled 0.31% to 1.2171, from an opening of 1.2208.

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Post tags: Bonds, CPI, Dollar, Donald Trump, EUR/USD, Inflation, Mike Pence, Mortgage Applications, United States, US Dollar Index, USD/CAD

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