Dollar rises alongside yields on hot US inflation

The dollar outperformed its rivals on Thursday as US Treasury bond yields surged higher after the data from the US showed the annual Consumer Price Index climbed to a new four-decade high of 7.5% in January. The University of Michigan’s flash February Consumer Sentiment Index will be featured in the US economic docket on Friday. Ahead of the weekend, the FOMC will submit its semi-annual Monetary Policy Report to Congress.

The CME Group’s FedWatch Tool shows that markets are pricing a 90% probability of a 50 basis points (bps) rate hike in March. The benchmark 10-year US Treasury bond yield, which gained nearly 5% on Thursday, is sitting at its highest level since August 2019 above 2%. Meanwhile, St Louis Fed President James Bullard told Bloomberg News that he would prefer a 50 bps hike in March and added that he would want the Fed to raise its policy rate by 100 bps by July. Heightened expectations for an aggressive policy tightening weighed heavily on stocks, the Nasdaq Composite lost more than 2%, the S&P 500 fell 1.8% and the CBOE Volatility Index (VIX) surged nearly 20%. 

EUR/USD stays under bearish pressure below 1.1400 in the early European session. The data from Germany showed that the Harmonized Index of Consumer Prices in January was up 5.1% on a yearly basis, matching the advance estimate and the market expectation.

GBP/USD is edging lower toward 1.3500 following mixed data releases. The UK’s ONS reported that the GDP expanded by 1% in the fourth quarter, compared to analysts’ estimate of 1.1%. Meanwhile, Industrial Production and Manufacturing Production grew by 0.4% and 1.3%, respectively, in 2021.

USD/JPY climbed above 116 for the first time since early January and seems to have gone into a consolidation phase.

Gold advanced to its strongest level in two weeks above $1,840 on Thursday but ended up closing the day in the negative territory amid rising US T-bond yields. XAU/USD stays on the back foot early Friday and pushes lower toward $1,820.

The risk-averse market environment hurt cryptocurrencies on Thursday and Bitcoin lost 2%. BTC/USD trades in the red near $43,000 in the early European morning. Ethereum erased 5% on Thursday and was last seen testing $3,000 support.

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