An increase in Treasury yields early in the European session caused a risk-off shift in global currency markets, with riskier currencies taking a hit. The dollar rose on Friday, recouping its losses from the previous day.
When economies restart from their coronavirus lockdowns, market participants are concerned about a surge in inflation triggered by substantial fiscal stimulus and pent-up consumer demand.
Despite the fact that soft US CPI data on Wednesday helped to ease those concerns, US Treasuries fell again on Friday, with the 10-year yield increasing above 1.6 percent.
At 0840 GMT, the dollar was trading at 91.835, up 0.4 percent on the day. However, it was still below Tuesday’s high of 92.506, which was the highest since November 2020.
According to Neil Jones, head of FX sales at Mizuho, “there is concern about inflation in the months ahead, and that feeling is dollar-supportive.”
“It seems that the United States is pretty upbeat in terms of more vaccine plays, and of course that feeds into the economic recovery in the States, at a time when fiscal and monetary stimulus are both extremely high,” he said.
On Thursday, President Joe Biden directed states to make all adults eligible for a coronavirus vaccine by May 1, just hours after signing a $1.9 trillion stimulus bill into law. The dollar index was already on track to end the week down about 0.1 percent, and Mizuho’s Jones predicted that the Friday rally would be short-lived. “My personal view is that the dollar is not on a trajectory for a higher fundamental trend,” he said.
Riskier currencies lost out, erasing recent gains. The Australian dollar – which is seen as a liquid proxy for risk appetite – fell by 0.5% to 0.77457 versus the U.S. dollar at 0841 GMT.
The focus of the market now shifts to the Federal Reserve meeting in the United States next week, where traders will be searching for any statements regarding increasing yields. In a note to clients, ING strategists predicted that the market will likely wait until after the Fed meeting before moving the dollar index into the 90s and 91s.
The Biden administration changed licences for companies selling to Huawei in China, limiting companies’ ability to supply products that can be used with 5G devices even more. At 0838 GMT, bitcoin was trading about $56,738 after coming close to, but not exceeding, its recent record high of $58,354.14.