Higher inflation rates in the United States is here to stay. The latest data point which came out from the United States, the April core personal expenditure index which they refer to as PCE which is a key measure of inflation that rose to 3.1 percent much higher than expected which pushes up inflation to 13 years high.

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The global reflation trade is very much intact. Not India reflation, but global reflation trade but there are things to take note of.

Number one - increasingly central banks around the world are sounding more and more hawkish.

Secondly, overall markets expect real yields to trend higher. Market pricing of inflation is also peaking a little bit, that may be one reason but anyway market is now expecting real yields to be a little higher.

Lastly, real yields and the US dollar are very strongly correlated. In the 2013 taper period, real yields preceded dollar strength and they have also actually been pretty closely correlated all through the last year and a half or so. So because the expectations in the very near term have moved to slightly higher yields there is a possibility that they could be a tactical upside for the dollar.

Watch the accompanying video for more.

(Edited by : Abhishek Jha)

First Published:May 31, 2021 4:44 PM IST