Dollar edges up as inflation data help lift Treasury yields

New York

THE dollar edged higher against a basket of currencies on Friday, paring some of the week's losses, as a stronger-than-expected rise in US and Chinese inflation gauges drove up bond yields.

The US Dollar Currency Index, which measures the greenback against a basket of six currencies, was 0.10 per cent higher at 92.163.

"We're seeing a consolidation in the broad US dollar today after a week of losses as inflation data from China and the US sparks the US treasury curve back into life," said Simon Harvey, currency analyst at broker Monex Europe.

Data on Friday showed US producer prices increased more than expected in March, resulting in the largest annual gain in 91/2 years, fitting in with expectations for higher inflation as the economy reopens amid an improved public health environment and massive government funding.

Most economists and Federal Reserve officials believe that higher inflation will be transitory because of labour market slack.

Earlier on Friday, data showed China's factory gate prices beat analyst expectations and rose at their fastest annual pace since July 2018 in March, the latest sign that a recovery in the world's second-largest economy is gathering momentum.

The dollar was also helped by data showing a second straight monthly drop in industrial production in Germany, further boosting the likelihood of Europe's biggest economy having contracted in the first quarter.

Still, the dollar's rally this year appears to have run out of steam. Despite Friday's gains, the dollar index was on pace to finish the week down 0.9 per cent, its worst weekly showing this year.

Sterling pared losses to trade little changed on the day after having touched a two-month low against the dollar in early London trading. It was still set for its biggest weekly drop against the euro so far this year, hurt by profit-taking after a strong first quarter.

The Australian dollar also fell as much as 0.9 per cent, before paring its losses. REUTERS