The US dollar rally against most currencies, that immediately followed the higher-than-expected US April core inflation number, proved short-lived as the greenback lost 0.6% to the euro, 0.3% to the British pound, 0.8% to the Swiss franc, and 0.3% to the renminbi since last Thursday’s close.

This week saw US inflation break even rates – measures of investors’ inflation expectations calculated as the spread between the yield on nominal US government bonds and the yield on Treasury Inflation-Protected Securities (TIPS) – surge with the 5-year break even rate closing at 2.717% on Monday, a new high since 2008.

After losing ground against most currencies over the last few weeks, the US dollar regained strength last Friday, driven by higher-than-expected US personal income (+21.1% MoM in March; vs consensus: +20.3%; previous: -7%) and personal spending (+4.2% MoM in March; vs consensus: +4.1%; previous: -1%), as most Americans received stimulus checks under the American Rescue Plan Act. The greenback was also supported by Q1 GDP growth figures, which indicated a slightly faster-than-expected recovery at +6.4% QoQ annualized (vs consensus: +6.1%; previous: +4.3%).

Desynchronized Economic Recovery: The global economy is bouncing back, entering a reflationary period characterized by accelerating growth as well as rising interest rates and inflation, although we believe the rise in inflation will be moderate as salaries are unlikely to increase in a more and more uberized world.

We are often asked by our clients for our analysis on the FX market, which we have summarized in the latest SystematicEdge FX Commentary. In this document, our goal is to explain currency drivers and their trends set by fundamental economic data which can, however, be disrupted by geopolitical events. Click on the button below to read the full FX Commentary