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Dollar Catches Ride Higher on Inflation-Led Jump in U.S. Bond Yields

ForexMay 12, 2021 14:51
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By Yasin Ebrahim

Investing.com - The dollar jumped Wednesday, riding the sharp upswing in U.S. bond yields following a red-hot inflation report for April that could continue as Federal Reserve members downplay growing price pressures.

The U.S. dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, added 0.64% to 90.70.

The Labor Department said Wednesday its consumer price index rose 0.8% in April, and 4.2% year-on-year, the fastest pace since 2008. Excluding food and energy, core CPI increased 0.9% in April.

U.S. bond yields jumped sharply higher following the report, with 10-year yields rising to nearly 1.68% its highest in two-weeks. The 10-year Treasury yields did ease slightly from highs, however, following a strong auction that showed investors demand for the note remains well supported.

As the economy continues to reopening, pricing pressure from the service side will likely add to the rapid pace of inflation.

Hotel prices rose by 7.7% month-on-month in April and airfares rose 10.2%, Jefferies (NYSE:JEF) said.

But in the wake of the hottest monthly inflation number since 2012, Federal Reserve officials continue to downplay the risk of a sustained pace of pricing pressure, arguing that some the factors behind the move higher are transitory.

"Readings on inflation on a year-over-year basis have recently increased and are likely to rise somewhat further before moderating later this year," Federal Reserve Vice Chairman Richard Clarida said Wednesday. "I expect inflation to return to -- or perhaps run somewhat above -- our 2% longer-run goal in 2022 and 2023."

Atlanta Fed President Raphael Bostic echoed the Fed vice chairman's comments, insisting it was "too soon" to judge whether the surge in inflation is a worrying trend.

Inflation will remain in focus as the U.S. is set to report producer price inflation data on Thursday. 

EUR/USD traded at $1.2081, down 0.54%, while GBP/USD lost 0.56% to $1.4062.

USD/JPY rose 0.87% to 109.56, while USD/CAD added 0.05% to $1.2105.

Dollar Catches Ride Higher on Inflation-Led Jump in U.S. Bond Yields
 

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