By Peter Nurse
Investing.com – The dollar gained in early European trading Monday, trading around three-month highs, after the passage of the massive Covid-19 relief bill through the Senate added to a strong U.S. labor market report in fostering expectations of a strong recovery this year.
At 3:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 92.168, near its three-month high of 92.201 set on Friday.
EUR/USD fell 0.2% to 1.1888, just off a three-month low, GBP/USD fell 0.2% to 1.3813, near a one-month low, USD/JPY was up 0.3% at 108.45, just off a nine-month high, while the risk-sensitive AUD/USD fell 0.1% to 0.7682.
Prompting these gains was the Senate passing the Biden’s administration’s $1.9 trillion stimulus plan on Saturday, a day after data showed the U.S. economy created more than twice as many jobs as expected in February.
While this stimulus is expected to result in a faster economic rebound this year, concerns about higher inflation have pushed up bond yields despite assurances from the U.S. Federal Reserve that monetary policy will stay loose.
The yield on the benchmark 10-year Treasury yield last traded at 1.60%, having jumped to a one-year peak of 1.62% late last week.
“The speed of the rise in U.S. yields is impacting positioning – especially short dollar positioning – and until we begin to see a little stability in Treasuries, the risk is that this bear market bounce in the dollar runs a little further,” said ING analysts, in a research note.
The Federal Reserve holds its next rate-setting meeting next week and its members have entered a traditional blackout period. With no speakers to focus on, investors will closely watch U.S. inflation figures on Wednesday and Friday amid worries over the potential implications of rising price pressures.
Also of interest this week will be the latest get together by the European Central Bank.
“Expect a modest downward revision to 2021 GDP forecasts and an upward revision to CPI forecasts, but probably not enough to make a material difference for the EUR,” added ING.
That said, the major focus will probably be on what ECB President Christine Lagarde says about rising bond yields, given members of this central bank have tended to be more vocal about their concerns than their Fed equivalents.
Elsewhere, USD/CNY rose 0.4% to 6.5245, rising to a more-than-two-month high, with the rise in U.S. yields prompting many investors to re-evaluate forecasts for the yuan.
This comes despite China trade data released earlier in the day showing that exports rose 60.6% year-on-year in February and imports rose 22.2% year-on-year. The figures are a little distorted due to the comparison effect with early 2020, when the pandemic was raging in China.
Dollar Climbs amid Raised Inflation Concerns
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