The US dollar on Friday rose following a fresh spike in US Treasury yields as the prospect of economies emerging from year-long COVID-19 lockdowns reignited inflation fears.
Market participants have grown wary in the past few 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 released on Friday showed that US producer prices (PPI) had their largest annual gain in nearly two-and-a-half years, although considerable slack in the labor 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 US 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 percent, helped by optimism around US economic prospects.
The US dollar was up 0.25 percent to 91.668 against a basket of six major currencies.
The greenback hit an intraday high of 92.506 when yields surged on Tuesday, which was its best since November last year, but recorded three straight days of losses as yields stabilized.
“Bond yields have been in a very strong uptrend, and with the PPI numbers somewhat higher than consensus, that’s contributing to the rise,” BK Asset Management managing director Kathy Lien said.
“That’s widely positive for the dollar, as the greenback has been taking its cues from yields and these new highs are really encouraging more demand for the greenback, especially at a time when you have the ECB [European Central Bank] accelerating bond purchases and being a little bit more dovish,” she said.
The euro was down 0.3 percent at US$1.19505.
Riskier currencies gave back some recent gains on Friday.
The New Taiwan dollar rose against the greenback, gaining NT$0.054 to close at NT$28.187, up 0.31 percent for the week.
The Australian dollar, which is seen as a liquid proxy for risk appetite, fell by 0.35 percent to A$0.77595 versus the US dollar.
The New Zealand dollar was down 0.68 percent against the greenback at NZ$0.7178.
The Norwegian krone lost out to the euro and US dollar.
Additional reporting by CNA, with staff writer
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