U.S. Dollar: Rose On Inflation Data And Fed Comments, Stays Firm

 | Feb 27, 2015 03:09AM ET

The US dollar jumped overnight as lifted by stronger than expected core inflation data as well as comments from Fed officials. San Francisco Fed John Williams said in an interview that the first rate hike could happen "this summer or this fall" if data come out as he expected. Meanwhile, he's also optimistic that US will release full employment by the end of this year and inflation will reach 2% level by the end of next year.

He noted that Fed should start raising rates before that. Meanwhile, St Louis Fed James Bullard said Fed should drop the word "patient" in the next FOMC statement to give it flexibility to hike rates in Summer. He said he'd be "for starting a little bit earlier on the normalization process. It's not tightening." Also, he noted that today's inflation data showed the core "being a little hotter" than expected and would "bolster confidence a little bit" that inflation is heading back towards target.

Meanwhile, he noted that even if Fed starts to hike rate, that's only "normalization" rather than "tightening" as Fed still have very accommodative policy. Also, Bullard said that labor markets are "improving so rapidly". And it would "seems like a bit little extreme" if unemployment drops below 5% and Fed still keeps rate near zero.

The dollar's rise suggests that the triangle consolidation from 95.48 could have completed at 94.05 already. We'll stay cautiously bullish as long as 94.05 holds and expect a break of 95.48 resistance today or early next week. In that case, the dollar index should have a test on next key long term fibonacci level at 50% retracement of 121.01 to 70.69 at 95.85 next.