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

16 May 2018

The dollar index, tracking it against six major currencies, rose 0.69%, with the euro down 0.61% to $1.1852.

The uptick in U.S. yields which unnerved equity markets and sent Wall Street shares significantly lower on Tuesday.

The currency's renewed strength came as the issue in the Korean Peninsula softens and the risk of a full-scale trade war between the United States and China lessens, allowing investors to consult the 10-year yield for signs.

"All that plays into the narrative, which is largely behind the dollar's rally since mid April, that the US economy is outpacing growth in most of the rest of the industrialized world and that the Fed will likely far outpace most of the major central banks in policy normalization", he said. The dollar's rise also helped send gold to its low point for the year.

Bets that the Federal Reserve will in fact be an outlier in tightening monetary policy among major central banks and signs the euro zone's economy recovery has peaked has unwound that entire euro strength and the currency is now down 1.8 percent in 2018.

"The implication is that means inflation has more upside potential, which means the Fed is more likely than not to hike four times this year, versus what the market was pricing in a month ago, which is two to three times", Mackay said.

"After the U.S. CPI (consumer price inflation) data the dollar's momentum has fallen off", said Alvin Tan, an FX strategist at Societe Generale.

Gold spike about $10 to the downside on the release as trader saw the US Treasury yields development. Senior FX strategist Junichi Ishikawa said the greenback's advance against the yen could stall, if the negative impact of higher yields on equities is prolonged. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

The euro fell to a fresh 2018 low of 1.1821, after weaker-than-expected economic growth in Germany. But until Tuesday, 3 per cent level wasn't convincingly broken.

The Aussie, meanwhile, added 0.2 percent to 0.7491 against the dollar, while the kiwi gained 0.3 percent to 0.6888 against the greenback, after hitting a five-month low of 0.6851.

The Australian dollar was up 0.3 percent at $0.7491 after sliding 0.7 percent overnight.

The currency shrugged off reports about Italy's anti-establishment 5-star Movement and far-right League's plan to seek pardon from the European Central Bank (ECB) about a €250 billion ($296 billion) Italian debt.

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