Dollar Gains as U.S. Yields are Up

The dollar is recovering its losses from the day before, rising on Friday. Early in the European forex session, a spike in Treasury yields triggered a risk-off move in global currency markets. Riskier currencies were losing out.

In recent weeks, market participants have become cautious that there could be a spike in inflation. This is caused by President Joe Biden’s massive fiscal stimulus. Moreover, by pent-up consumer demand when economies reopen from their pandemic lockdowns.

Soft U.S. CPI data on Wednesday somehow calmed those fears, but U.S. Treasuries sold off again on Friday. The 10-year yield rose above 1.6%.

At 0840 GMT, the dollar was up 0.4% on the day at 91.835. However, it was still below the high of 92.506 it reached on Tuesday. That was its strongest since November 2020.

Neil Jones, head of FX sales at Mizuho said there is concern over inflation in the months ahead and that sense is dollar-supportive.

It looks pretty upbeat in the U.S. in terms of the rollout of further vaccine plays, he said. Of course, that feeds into the U.S. economic recovery. A time when fiscal stimulus is extremely high, monetary stimulus is extremely high, he added.

On Thursday, President Joe Biden told U.S. states to make all adults eligible for a coronavirus vaccine by May 1. This was hours after he signed a $1.9 trillion stimulus bill into law.

Currencies Movements

Meanwhile, the USD/JPY pair added 0.5% at 109.03. EUR/USD fell 0.3% to 1.1945, and GBP/USD also fell 0.3% to 1.3943.

Riskier currencies erased recent gains. At 0841 GMT, the Australian dollar fell by 0.5% to 0.77457 versus the U.S. dollar. The AUD is seen as a liquid proxy for risk appetite.

The New Zealand dollar (NZD) lost around 0.6% against the USD, while the Norwegian crown lost out to both the euro and the greenback.

The European Central Bank (ECB) said on Thursday that it would accelerate its money printing to prevent a rise in euro zone bond yields.

At 0841 GMT, the euro was down around 0.5% at $1.19325. But it was still on track to end the week up 0.2% overall.

The dollar index was also still headed to end the week down by around 0.1%. Mizuho’s Jones said he thought that the strengthening on the weekend was likely to be temporary.

He said that his personal view is that the dollar is not on a trajectory for a higher fundamental trend.