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Dollar holds gains as inflation fears boost yields

ForexMay 12, 2021 21:18
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© Reuters. A packet of Lincoln five dollar bills is inspected at the Bureau of Engraving and Printing in Washington

By Stanley White

TOKYO (Reuters) - The dollar held gains on Thursday, supported by higher Treasury yields after a bigger-than-expected rise in U.S. consumer prices fanned fears about an increase in inflationary pressure.

Traders will now turn their attention to U.S. weekly jobless claims due later on Thursday and retail sales numbers on Friday to determine whether consumer prices will continue to rise.

The greenback is likely to continue to rise as some investors unwind bearish bets on the currency and reposition for more sustained inflation as more countries leave behind the coronavirus pandemic, analysts said.

"The move in the dollar was fuelled by the upward surprise in consumer prices, but also because the market was caught on the short side," said Shinichiro Kadota, foreign exchange strategist at Barclays (LON:BARC).

"This market is aware of the potential for further upside surprises to inflation. This will support the dollar."

The dollar bought 109.55 yen, close to its strongest level in five weeks.

Against the euro, the dollar stood at $1.2083, holding onto a 0.6% gain from the previous session.

The British pound bought $1.4068.

The dollar also rose to 0.9083 Swiss franc, close to a one-week high.

U.S. consumer prices increased by the most in nearly 12 years in April as booming demand amid a reopening economy pushed against supply constraints, data on Wednesday showed.

Benchmark 10-year U.S. Treasury yields rose to a five-week high of 1.7040%, which increases the appeal of holding dollar-denominated assets.

Signs of stronger labour market and increased consumer spending would offer more evidence that inflationary pressure will pick up, which could push yields and the dollar even higher, traders said.

Dollar holds gains as inflation fears boost yields
 

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