US Dollar Surges, Boosted By Sales Data And Rising Bond Yields

Lloyd Doyle
May 17, 2018

The dollar's strength also helped it gain to within a whisker of hitting a 3-1/2 month high versus the yen JPY= while major currencies elsewhere traded within tight ranges ahead of a euro zone economic sentiment survey and USA retail sales.

The dollar inched higher against a basket of currencies on Tuesday, having pulled up from its lowest level in more than a week as hopes for easing global trade tensions pushed United States bond yields higher.

Yields had already been increasing earlier on Tuesday before the release of data that showed a moderate rise in USA retail sales in April, but also that consumer spending appeared on track to accelerate after slowing sharply in the first quarter.

The dollar index had scaled a four-month high of 93.416 last week, as a rise in US Treasury yields highlighted the wide interest rate gap between the United States and some other developed economies, and bolstered the dollar's appeal.

The greenback's rally, which has seen the dollar claw back most of its 2018 losses after a reassessment of the path of US monetary policy versus other countries, came to a halt last week following disappointing USA inflation numbers.

The data indicated consumer spending is stronger than expected by the market, said Jon Mackay, investment strategist at Schroders North America in NY.

The yield, a barometer for mortgage rates and other financial instruments, has jumped recently on signs of rising inflation, which sparked market speculation for more rate-hikes later this year.

The US dollar edged slightly lower on Wednesday, lingering just below its five-month high, as the 10-year Treasury note rekindled gains that had been lost last week.

Dollar inches higher, supported by US bond yields

"It's taken some time to get through it and this is kind of that breakout day", said Willie Delwiche, investment strategist at Baird in Milwaukee.

"There's been some improved sentiment on conditions in the USA compared with other parts of the world", said Sireen Harajli, foreign exchange strategist at Mizuho in NY. Earlier on Tuesday, US ambassador to China Terry Branstad said the US wanted a timetable on how China would open up its markets to US exports, with the two countries still not close to resolving trade frictions.

Home Depot shares fell 1.7% after the home improvement chain missed Wall Street's sales forecast.

The pan-European FTSEurofirst 300 index.FTEU3 rose 0.14 percent.

The euro was 0.1 per cent lower at $1.1823 after brushing $1.1817, its weakest since late December. Oil prices hovered around multi-year highs, supported by concerns that USA sanctions on Iran are likely to restrict crude oil exports from one of the biggest producers in the Middle East.

On the economic front, the US industrial production rose 0.7 percent in April, beating expectations of 0.6 percent, according to statistics released by the Federal Reserve on Wednesday.

Spot gold dropped 1.5 percent to $1,292.16 an ounce, its lowest point of the year.

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