Ahead of the US CPI release, the dollar rises on high yields

Ahead of the US CPI release, the dollar rises on high yields

sonynetbusiness.net is a website dedicated to investing. The dollar rose in early European trade Tuesday, boosted by high US bond yields ahead of the release of the latest consumer inflation data, which is expected to confirm the Federal Reserve's quick rate of tightening.

The Dollar Index, which measures the value of the dollar against a basket of six other currencies, was 0.2 percent higher at 100.155 at 3:55 a.m. ET (0755 GMT), just below last week's near two-year high of 100.19.

The anticipation that the US central bank will continue to tighten monetary policy after raising its benchmark rate by 25 basis points in March, but at a faster pace to tackle surging inflation, has boosted the dollar recently.

The yield on benchmark 10-year notes rose to 2.836 percent earlier in the session, its highest level since December 2018, before levelling out. If Tuesday's early advances continue, benchmark yields will have gained for the ninth straight day.

The latest consumer pricing data, which will be released at 8:30 GMT, is likely to support these expectations of significant interest rate hikes (1230 GMT). The March release is predicted to show an increase of 8.4% over February, up 1.2 percent on the month, while the core data, which includes food and energy costs, is expected to increase by 6.6 percent over the year and 0.5 percent on the month.

Later in the day, comments from Fed Vice Chair nominee Lael Brainard will be of interest. Last week, Brainard stated that the Fed might begin rapidly lowering its balance sheet as early as May.

The dollar surged 0.3 percent to 125.72, close to its June 2015 high of 125.86, with a rise over that level taking the dollar to its best level against the yen since 2002.

While many expect the Fed to boost rates swiftly this year, the Bank of Japan has intervened several times to keep benchmark bond yields near zero.

As certain COVID limitations were relaxed in Shanghai, the USD/CNY fell slightly to 6.3680, weakening after reaching a two-week peak earlier.

"Asia was potentially trapped in a pincer movement of higher US interest rates and slowing China growth, which was not compensated by somewhat lower oil prices," said Jeffrey Halley, senior market strategist at OANDA. "As the region's central banks experiment with tightening monetary policy, we should expect more Asian currency weakening." As the FOMC rolls up its sleeves and goes to work in May, those pressures may probably increase."

The EUR/USD dipped 0.2 percent to 1.0867, giving up some of the gains made Monday when Emmanuel Macron narrowly defeated far-right candidate Marine Le Pen in the first round of the French presidential election.

The crisis in Ukraine continues to put pressure on the single currency, with sanctions imposed to punish Russia wreaking havoc on commodity prices and, as a result, inflation.

The European Central Bank meets on Thursday and faces the challenge of balancing rising consumer prices, with the German CPI rising to 7.3 percent year on year in March, against growth pressures from the Ukraine crisis.

Despite Britain's unemployment rate decreasing to 3.8 percent in the three months to February, down from 3.9 percent the previous month and below the 4.0 percent level seen in early 2020, shortly before COVID-19 cases first swept Europe, the GBP/USD declined 0.2 percent to 1.3009.