US Dollar Weakens to Near Three-Week Low: Markets Await CPI Data
Early on Tuesday, the US dollar has fallen to the lowest levels seen since almost three weeks as Treasury yields dipped and markets cautiously await inflation data from the world’s most powerful economy scheduled for release later in the day. At the time of writing, the US dollar index DXY is trading around 92.16.
After touching multi-month highs during March, the US currency and bond yields started April on a weaker footing, sliding lower after Fed officials downplayed any severe increase in inflation which would require their intervention. Although, the US dollar did receive a boost on the back of a stronger than expected PPI reading which once again turned the focus back on higher inflation late last week.
The recent strengthening in the greenback can also be attributed to rising expectations for the US economy to post a faster than expected recovery from the coronavirus crisis, powered by multiple rounds of fiscal stimulus measures and the widespread rollout of the COVID-19 vaccine. For now, it appears that the optimism surrounding economic recovery in the US has been fully priced in by markets – another possible reason why the reserve currency has been easing lower in the past few sessions.
This week, however, the focus shifts from moves in US Treasury yields and towards economic data, starting with CPI figures releasing today and retail sales due on Thursday. A stronger than forecast CPI reading can once again raise concerns about a surge in inflation and send Treasury yields higher, driving more bullishness in the US dollar.
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