Dollar Up as Traders Brace for Inflation Data

The dollar gained ground on Monday following the previous week’s decline with traders assessing the outlook for Treasury yields. They were bracing for U.S. inflation and retail sales data.

For foreign exchange markets, it was a quiet start with the euro slipping back below $1.19. The British pound slid to a two-month low, as some analysts cited blood clot concerns around the AstraZeneca COVID-19 vaccine. Notably, the UK has relied heavily on its aggressive vaccination program.

For most of 2021, the dollar’s fortunes have been tied to the performance of Treasury yields. In February, concerns about rising inflation in the United States and a stimulus-fuelled economic rebound triggered a substantial gain in yields on U.S. government bonds.

Last week, a drop in U.S. yields triggered the worst week for the dollar in 2021. However, the currency found has bounced back on Monday.

Federal Reserve Chairman Jerome Powell said that the U.S. economy was at “an inflection point”. Moreover, it looked set for a strong rebound in the coming months, he said in a U.S. media interview released on Sunday.

However, Powell also warned of risks stemming from a hasty reopening.

U.S. March Inflation Data

The markets are now waiting for U.S. March inflation data due on Tuesday.

MUFG analysts said they are set to see the first evidence of the much-anticipated surge in inflation. It is widely expected through the coming months as base effects from a year ago begin to take effect. That is as the sharp declines post-COVID start to fall out of the annual calculations, the analysts said.

They also said the greenback’s fortunes could well remain linked to 10-year yields.

The benchmark 10-year Treasury yield was at 1.6462%. It previously dropped to as low as 1.6170% last week. Moreover, it had surged to a more than a one-year high of 1.7760% on March 30.

The dollar index added 0.1% to 92.275 while the euro shed 0.2% to $1.1875.

In cryptocurrency news, Bitcoin traded above $60,000, closing the gap to its record high.

Furthermore, the dollar initially gained against the pound before reversing its track. The British currency last added 0.2% at $1.3734 after briefly hitting a two-month low of $1.3669.

The dollar lost 0.2% to 109.41 yen versus the Japanese currency.

The USD has some upside potential this week, Commonwealth Bank of Australia strategist Kimberley Mundy wrote in a report.

Strong U.S. economic data will highlight the divergence between the U.S.’s fast economic recovery and the more stunted recoveries in other developed economies, the report said.

The dollar can lift back toward 110 yen, she said, while the euro has scope to retrace most of the recent gains from its almost five-month low near $1.17.