Dollar Edges Higher Ahead of Key Inflation Data


By Peter Nurse – The dollar edged higher in early European trading Tuesday, helped by rising Treasury yields, but gains have been limited ahead of the release of key U.S. inflation data.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 92.210, only marginally higher than Thursday’s low of 91.995, which was the weakest since March 23.

USD/JPY rose 0.2% at 109.59, EUR/USD dropped 0.1% to 1.1896, while the risk-sensitive AUD/USD fell 0.2% to 0.7610.

The yield on the benchmark 10-year U.S. Treasury note has gained by about 2 basis points to just above 1.69% early Tuesday, after the Treasury auctioned $38 billion of 10-year paper on Monday, although this is still well below the 1.78% level hit on March 30, which was the highest in over one year.

The greenback has eased back along with U.S. yields this month after surging to multi-month peaks on expectations that massive fiscal stimulus and a robust economic recovery will spur prompt the Fed to tighten faster than it is currently guiding.

However, Fed officials have repeatedly stated that the central bank sees any near-term price pressures as transitory, and the central bank will want to see concrete improvements in inflation in employment before it tightens policy.

With this in mind, all eyes will be on the release of the U.S. consumer price index for March, due at 8:30 AM ET (1330 GMT), which is expected to show inflation increasing by 0.5% on the month, or 2.5% year-over-year, up from 1.7% in February.

“We do look for DXY [Dollar Index] gains during the early part of the week,” said analysts at ING, in a note, “but failure to advance through the 92.55/70 technical area this week will leave open the scenario that the corrective dollar rally was exhausted on the last day of March.”

However, it appears the inflation rate (and employment levels) aren’t the only data the Federal Reserve is looking at as a judge as to when to start tightening its accommodative monetary stance.

Federal Reserve Bank of St. Louis President James Bullard said Monday that getting three-quarters of Americans vaccinated would be a signal that the Covid-19 crisis was ending, a necessary condition for the central bank to consider tapering its bond-buying program.

Just over a fifth of Americans are currently fully vaccinated, but worryingly the United States reported an 8% rise in new Covid-19 cases last week, the fourth week in a row that infections have increased, according to Reuters data.

There are speeches later from the Federal Reserve’s Mary DalyEsther GeorgePatrick Harker and Raphael Bostic.

Elsewhere, GBP/USD rose 0.1% to 1.3748 after Britain’s economy grew by 0.4% in February from January.

This was slightly below the expected growth of 0.6%, but the fall in gross domestic product in January was not as severe as previously estimated, down by 2.2% compared with the initial reading of a 2.9% drop.

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