Rising U.S. inflation could hurt dollar in next few months
Currency market strategists are predicting greater weakness in the U.S. dollar over the next few months, as the Federal Reserve seems to have closed the door on interest rate hikes through the spring and left the greenback alone with a destructive bedfellow: rising inflation.With the Fed’s policy statement in March and remarks from Fed Chair Janet Yellen later in the month striking a cautious tone, strategists say this has set the stage for a rough patch for the dollar over the near-term as inflation nips at it.
image: http://www.trunews.com/wp-content/uploads/2016/02/Yellen-6-300x238.jpg
U.S. inflation has firmed in recent months, with the core Consumer Price Index rising 2.3 percent in the 12 months through February to mark the largest increase since May 2012. The core personal consumption expenditures price index, which is the Fed’s preferred measure, gained 1.7 percent in the 12 months ended in February.
U.S. Federal Reserve Board Chair Janet Yellen testifies at the House Financial Services Committee in Washington February 10, 2016. REUTERS/Gary Cameron
The core inflation readings exclude food and energy prices. The Fed is targeting a 2 percent core PCE reading.
Inflation typically undermines the dollar’s strength by diminishing its spending power. Differences in inflation rates between the United States and the euro zone have been the main force behind the dollar’s value against the euro since 2000, according to a research report from Fundstrat Global Advisors.
While expectations for higher inflation once tended to ramp up bets on a swifter pace of Fed rate hikes and, in turn, boost the dollar, strategists say the perceived improbability of a Fed rate hike until at least June has reinstated inflation’s traditional role of eroding the dollar’s value.
“If inflation in the U.S. is relatively high, but interest rates aren’t expected to move higher… that doesn’t ultimately bode well for the dollar,” said Shahab Jalinoos, global head of FX strategy at Credit Suisse in New York.
Jalinoos sees the euro hitting $1.17 against the dollar within the next three months. That suggests 2.7 percent more downside for the dollar against the euro.
Ian Gordon, foreign exchange strategist at Bank of America Merrill Lynch in New York, says the Fed could wait before hiking rates even if core PCE reached its 2 percent target. He notes Yellen expressed skepticism last month that gains in inflation were sustainable.
A Reuters poll on Friday showed the median expectation among top Wall Street banks that deal directly with the Fed was for a year-end inflation rate of 0.875 percent, implying just two rate hikes this year.
Gordon says investors have to be cautious in boosting long-dollar positions “over the coming months until we get more evidence that the pickup in inflation is sustainable and the Fed is going to respond to it.”
Data from the Commodity Futures Trading Commission released on Friday showed speculators slashed their bullish bets on the dollar to the lowest in nearly two years.
The greenback has an advantage over regions such as Europe and Japan, where yields are extremely low given ultra-accommodative monetary policies. U.S. 10-year Treasury notes last yielded 1.73 percent, compared with a 0.10 percent yield for the 10-year German Bund.
But the dollar has already tumbled this year on traders’ views that the Fed would not be able to follow through with the four rate hikes it projected in December. The Fed confirmed traders’ skepticism last month by cutting projections to just two rate hikes.
The dollar index, which measures the U.S. currency against a basket of six major currencies, fell 4.1 percent in the first quarter, its biggest quarterly percentage drop in five and a half years.
Thomas Lee, managing partner at Fundstrat in New York, says the index would likely fall another 5 percent or so by summer.
“I do see USD downside,” Lee said. “(The Fed) is likely to be very patient” despite rising inflation.
Abortion Activist Claims Planned Parenthood Videos Caused Raid At His Home
SACRAMENTO, Calif. (AP) – An anti-abortion activist who made undercover videos at Planned Parenthood clinics said in a social media posting that California Department of Justice agents raided his home Tuesday.
Agents seized all video footage from his apartment, along with his personal information, David Daleiden said in a Facebook post. Daleiden, the founder of a group called the Center for Medical Progress, said agents left behind documents that he contends implicate Planned Parenthood in illegal behavior related to the handling of fetal tissue.
Center for Medical Progress spokesman Peter Robbio confirmed the social media posting is authentic, but he declined further comment. He said Daleiden lives in Orange County.
MORE: David Daleiden, Activist Behind Planned Parenthood Videos, Offered Probation
Rachele Huennekens, a spokeswoman for state Attorney General Kamala Harris, said in an email that she can’t comment on any ongoing investigation.
Harris said in July that she planned to review the undercover videos to see if center violated any state charity registration or reporting requirements. She said that could include whether Daleiden and a colleague impersonated representatives of a fake biomedical company or filmed the videos without Planned Parenthood’s consent.
Harris, a Democrat, is running for the U.S. Senate. Daleiden suggested in the social media posting that the raid was politically motivated because Harris has accepted campaign contributions from Planned Parenthood.
Daleiden faces related charges in Texas. One of his Texas attorneys, Terry Yates, did not return telephone and email messages Tuesday.
Texas authorities initially began a grand jury investigation of Planned Parenthood after the undercover videos were released in August.
But the grand jury cleared Planned Parenthood of misusing fetal tissue and indicted Daleiden and a colleague, Sandra Merritt, in January on charges including using fake driver’s licenses to get into a Houston clinic.
Daleiden previously said his group followed the law in making the videos. His post Tuesday called the raid an “attack on citizen journalism” and said he will “pursue all remedies to vindicate our First Amendment rights.”
http://sacramento.cbslocal.com/2016/04/05/abortion-activist-claims-planned-parenthood-videos-caused-raid-at-his-home/
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