The U.S. Dollar Index has declined by over 2.00 points in four trading days. This is a sharp drop in the U.S. Dollar Index. The U.S. Dollar Index is measured against a basket of six leading currencies such as the Euro (57.6%), Japanese Yen (13.6%), British pound (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.2%), and the Swiss Franc (3.6%). Lately, the Asian growth countries such as China, India, and others have been raising interest rates in order to fight high inflation. Over the past two weeks there have been food riots breaking out around the world as the price of food has inflated to levels that are not affordable for many people. These are some of the negative effects of inflation.
The Federal Reserve Bank tells us that there is very little inflation in the United States. However, gasoline is now over $3.00 at the pump and this is directly felt by every U.S. consumer. In fact, spot crude is making new 52 week highs this morning and this will be felt by nearly everyone around the world.
The major stock market indexes are all still holding up fine. The major stock markets continue to rally nearly everyday. The Federal Reserve Bank continues to pump up cash reserves by buying U.S. Treasuries everyday via their quantitative easing program. In other words, the inflation rally lives on as all of this liquidity continues to prop the stock markets higher and higher.
Investors and traders at this time continue to go right along with inflation rally as the dips in the market seem to be bought up on almost every sector and index everyday. The volume trends remain at extremely light levels which tell us that there is very little participation by the public who always seems to arrive late to the party as they will usually buy the high.
Commodity ETF's and ETN's such as PowerShares DB Commodity Index Tracking Fund (NYSE:DBC), Dow Jones-AIG Commodity Index Total Return ETN (NYSE:DJP), iPath Dow Jones-AIG Softs Total Return Sub-Index ETN (NYSE:JJS), and others are all trading at or near all time highs. Higher commodity prices are one of the major effects of inflation and a weaker U.S. Dollar Index.