Ahead of The US CPI Release, the Dollar Rises on High Yields

The dollar rose in early European trade Tuesday; it received a boost from high US bond rates ahead of the release of the latest consumer inflation data, which should confirm the Federal Reserve’s quick rate of tightening.

The Dollar Index, which measures the dollar’s value 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 would 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 day, its highest level since December 2018, before leveling out. If Tuesday’s early advances continue, benchmark yields will have gained for the ninth day.

Bond Yields Fluctuate Around Zero

While many expect the Fed to boost rates swiftly this year, the Bank of Japan has intervened several times to maintain benchmark bond yields around zero. COVID limitations were minimal in Shanghai; the USD/CNY fell marginally to 6.3680, weakening after reaching a two-week peak earlier.

“Asia was possibly trapped in a pincer movement of increasing US interest rates and slowing China growth, which was not compensated by somewhat lower oil prices,” said Jeffrey Halley, senior market strategist at OANDA. ” 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 for 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.