Dollar rises with Treasury yields as economic prospects improve

New York

THE US dollar rose on Friday following a fresh spike in Treasury yields as the prospect of economies emerging from year-long Covid-19 lockdowns reignited inflation fears.

Market participants have grown wary in recent weeks that massive fiscal stimulus and pent-up consumer demand could lead to a jump in inflation as expanding vaccination campaigns bring an end to lockdowns.

Data on Friday showed US producer prices (PPI) had their largest annual gain in nearly 21/2 years, though considerable slack in the labour market could make it harder for businesses to pass the higher costs on to consumers.

The US economy is set to get a massive shot in the arm after President Joe Biden signed a US$1.9 trillion stimulus bill into law on Thursday and urged US states to make all adults eligible for a Covid-19 vaccine by May 1.

A sell-off in Treasuries overnight continued into the US session, with the yield on the benchmark 10-year note hitting a fresh one-year high of 1.6420 per cent, helped by optimism around US economic prospects.

The dollar was up 0.25 per cent at 91.668 against a basket of six major currencies, leaving it on track to end the week slightly lower. The greenback hit an intraday high of 92.506 when yields surged on Tuesday, which was its strongest since November, but recorded three straight days of losses as yields stabilised.

"Bond yields have been in a very strong uptrend and with the PPI numbers somewhat higher than consensus, that's contributing to the rise," said Kathy Lien, managing director at BK Asset Management.

The European Central Bank said on Thursday that it would increase the pace of its money printing to prevent a rise in euro zone bond yields in support of the economic recovery.

Although the euro was down 0.3 per cent at US$1.19505, it was set for a small weekly gain.

Riskier currencies gave back some recent gains on Friday.

The Australian dollar - which is seen as a liquid proxy for risk appetite - fell by 0.35 per cent to 0.77595 versus the US dollar. REUTERS