CURRENCIES

Dollar holds gains after inflation surprise

Published Fri, May 14, 2021 · 05:50 AM

London

THE dollar held on to its gains on Thursday and riskier currencies fell, in a continuation of moves that started in the previous session when a surprisingly large rise in US consumer prices fanned inflation fears.

Data showed that US consumer prices increased by the most in nearly 12 years in April, sparking a "risk-off" move in global markets: equities and riskier currencies fell while US Treasury yields rose.

Market attention now turns to US weekly jobless claims due later on Thursday and retail sales numbers on Friday for guidance on whether upward pressure on prices will persist.

US Federal Reserve vice-chair Richard Clarida said on Wednesday that weak job growth and strong inflation in April had not changed the central bank's plan to maintain loose monetary policy.

The dollar index was steady at 90.750 at 1123 GMT, compared with Wednesday's high of 90.798.

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"The inflation debate will drive the market for some time I think, at least through the summer," said Timothy Graf, head of EMEA macro strategy at State Street Global Markets.

"I think it's very early to dismiss this and it's also very early to overreact and think this is a new regime change because this was a number driven by components that have huge one-off spikes."

He added that he expected the dollar to strengthen in the short term due to the risk-aversion in equity markets but that over the next six months it has more potential to weaken.

The Australian dollar, which is seen as a proxy for risk appetite, was down 0.2 per cent at 0.7707 versus the dollar, extending losses after having its biggest daily drop since March on Wednesday.

The New Zealand dollar was also down 0.2 per cent. It briefly rose after Prime Minister Jacinda Ardern said she was exploring quarantine-free travel with other countries.

The euro was up 0.1 per cent at US$1.2079. The Japanese yen was flat against the dollar, with the pair changing hands at 109.580.

Bitcoin plunged 17 per cent when Elon Musk said in a tweet that Tesla Inc will no longer accept the cryptocurrency for car purchases. The cryptocurrency dropped from around US$54,819 to US$45,700, its lowest since March 1. But it recovered overnight and was up 0.5 per cent at around US$49,697 at 1132 GMT.

Ether, the second biggest cryptocurrency after bitcoin, dropped 14 per cent, partly recovered, then fell again, down 1.5 per cent at US$3,755. REUTERS

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