Dollar Rallies, Market Trims Rate Cut Expectations
The US dollar index (DXY) strengthened on Tuesday (May 12th) and moved towards the 98.30 area after higher-than-expected US inflation data pushed up Treasury yields and reinforced expectations that the Fed's interest rates would remain high for longer.
The CPI report showed headline inflation rose to 3.8% year-on-year in April, above expectations of around 3.7%, with monthly inflation at 0.6%. Core inflation also strengthened, rising 0.4% month-on-month and 2.8% year-on-year, indicating persistent underlying price pressures and reducing the scope for near-term interest rate cut expectations.
Correspondingly, US Treasury yields rose: the 10-year increased 1.10% to 4.46%, while the 30-year rose 0.80% to 5.03%. The rise in yields strengthened the dollar's appeal and pressured other major currencies, primarily through repricing of monetary policy expectations.
In the G10 market, EUR/USD fell towards 1.1740 as the dollar dominated following the inflation release, while market participants also awaited further comments from ECB officials and monitored the impact of high energy prices on the Eurozone economy. GBP/USD weakened to the 1.3540 area, pressured by a stronger dollar and declining risk appetite, with additional sentiment from rising fiscal uncertainty and energy price concerns weighing on household demand.
USD/JPY rose towards 157.60, supported by US yields and dollar demand, although concerns about potential intervention by Japanese authorities held back more aggressive gains. AUD/USD fell to around 0.7240 due to a stronger greenback and pressure on risk-sensitive currencies.
The next focus will be on how the market assesses the sustainability of core inflation pressures, the direction of Treasury yields, and the Fed's policy signals. Outside the US, comments from ECB officials, energy dynamics, and the risk of Japanese intervention remain key variables that could change the direction of FX movements. (arl)*
Source: Newsmaker.id
