The US dollar on Friday edged higher against a basket of currencies, 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 index was 0.13 percent higher at 92.18.
“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, a currency analyst at broker Monex Europe.
Data on Friday showed that US producer prices increased more than expected last month, resulting in the largest annual gain in nine-and-a-half years, fitting in with expectations for higher inflation as the US economy reopens amid an improved public health environment and massive government funding.
Inflation is expected to heat up this year, driven by pent-up demand, and as the weak readings last spring drop out of the calculation. Prices tumbled early in the COVID-19 pandemic amid mandatory closures of non-essential businesses across many states to slow the first wave of COVID-19 infections.
Most economists and US Federal Reserve officials believe higher inflation will be transitory because of labor market slack.
Earlier on Friday, data showed that China’s factory gate prices last month beat analyst expectations and rose at their fastest annual pace since July 2018, the latest sign that a recovery in the world’s second-largest economy is gathering momentum.
The US 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 US dollar’s rally this year appears to have run out of steam. Despite Friday’s gains, the US dollar index finished the week down 0.89 percent, its worst weekly showing this year.
“I guess this may only be a pause with the US dollar selling likely to resume so long as the Fed’s patient rhetoric remains unchanged, especially this early in the anticipated inflation cycle,” AxiCorp Financial Services Pty chief global markets strategist Stephen Innes said.
The New Taiwan dollar shrank against the US dollar on Friday, losing NT$0.006 to close at the day’s low of NT$28.436, but gaining 0.34 percent from NT$28.533 a week earlier.
Sterling pared losses to trade little changed on the day after having touched a two-month low against the US dollar in early London trading.
The Australian dollar also fell as much as 0.9 percent, before paring its losses.
Mitsubishi UFJ Financial Group analysts said in a note that the move had no clear macro trigger, but a financial stability report from Australia’s central bank indicating it would refrain from monetary policy action to tackle growing lending risk might have pressured the currency.
Additional reporting by CNA, with staff writer
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