Title: Dollar Edges Higher; Inflation Concerns to the Fore

Jun 01, 2022 02:56AM ET

By: AnalysisWatch

The US dollar rose in early European trading on Wednesday, supported by higher government bond yields and a renewed focus on rising global inflation.

At 2:55 a.m. EDT, the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 101.995, continuing its gains from the previous session.

Earlier in the week, the index fell to a five-week low of 101.29 as expectations grew that U.S. inflation was showing signs of peaking in the face of aggressive monetary tightening by the Federal Reserve, suggesting the Fed may pause its rate-hike cycle after two more hikes in June and July.

However, after consumer inflation in the eurozone hit a record high and oil prices rose to their highest level since early March, sentiment shifted again, with 10-year Treasury yields rising to 2.88% overnight, the highest level since May 19.

The Federal Reserve will begin reducing its $8.9 trillion balance sheet later today with the release of the Beige Book, and separate events will feature New York Fed President John Williams and St. Louis Fed President James Bullard.

In terms of economic data, April job openings and the JOLTS jobs report will be released at 10:00 am EDT, ahead of the much-watched official monthly employment report on Friday.

The EUR/USD currency pair fell 0.1% to 1.0718, coming down from the five-week high it reached earlier in the week following the release of very weak German retail sales. The risk-sensitive GBP/USD pair dropped 0.1% to 1.2593, while the risk-sensitive AUD/USD pair fell slightly to 0.7172 and the NZD/USD pair declined 0.3% to 0.6493.

On the other hand, the USD/JPY pair rose 0.5% to 129.34 and hit a two-week high on the back of rising US yields, while the USD/CNY strengthened 0.3% to 6.6911.

The USD/CAD rose 0.2% to 1.2665 ahead of Wednesday's Bank of Canada meeting, which is expected to raise rates by half a percentage point.