Agitation around dollar would not subside. Overview for 12.08.2021

Euro/dollar has coped with strong market pressure. The quotations are 1.1740. Yesterday the pair renewed the local low near 1.1704 but did not go deeper down.

So, the USA presented inflation statistics for July, and they called down nervous investors. Inflation remains at its all-time high of 5.4% y/y, but monthly speaking, it has slowed down. In July, the CPI extended to 0.5% m/m after growing by 0.9% m/m previously.

The main sources of the annual inflation remain expenses on traveling and logistics, as well as the postponed negative influence of supply systems failures. Base inflation in the USA in July reached 4.3% y/y after 4.5% y/y in June. Last year's low-base effect constantly smoothes out here.

There is a certain imbalance of supply and demand in certain sectors of economy because business makes attempts to rebuild its resources and cut down on the number of supply problems. Simultaneously, the growth of demand was stimulated by low interest rates and federal packages of economic support. Taken together, this provoked price pressure.

Agitation around these inflation data was stunning: earlier the Fed used to talk about labor market state and inflation as about two separate parameters, stabilizing which it could reduce stimulation. The labor market looked perfect but questions remained about consumer prices. Now the refined inflation index that the Fed cares about is at its highs since winter 1991. Inflation might have reached its peak and will start going down somewhat, yet the market still expects the Fed to make comments on toughening of its credit and monetary policy, as long as the economy is doing well.