Dollar holds gains on inflation, kiwi boosted by reopening

© Reuters. FILE PHOTO: A packet of former U.S. President Abraham Lincoln five-dollar bill currency is inspected at the Bureau of Engraving and Printing in Washington March 26, 2015. REUTERS/Gary Cameron/File Photo

By Stanley White

TOKYO (Reuters) – The dollar held gains on Thursday, supported by higher Treasury yields after a bigger-than-expected rise in U.S. consumer prices fanned fears about an increase in inflationary pressure.

Traders will now turn attention to U.S. weekly jobless claims due later on Thursday and retail sales numbers on Friday for guidance on whether upward pressure on prices will persist.

The greenback is likely to continue to strengthen as some investors unwind bearish bets, and re-position in anticipation of sustained inflation as more economies emerge from the coronavirus pandemic, analysts said.

“The move in the dollar was fuelled by the upward surprise in consumer prices, but also because the market was caught on the short side,” said Shinichiro Kadota, foreign exchange strategist at Barclays (LON:).

“This market is aware of the potential for further upside surprises to inflation. This will support the dollar.”

The dollar traded at 109.51 yen, close to its strongest level in five weeks.

Against the euro, the dollar stood at $1.2084, holding onto a 0.6% gain from the previous session.

The British pound bought $1.4069.

The dollar also traded at 0.9081 Swiss franc, close to a one-week high.

U.S. consumer prices increased by the most in nearly 12 years in April as booming demand amid a reopening economy pushed against supply constraints, data on Wednesday showed.

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Benchmark 10-year U.S. Treasury yields rose to a five-week high of 1.7040%, increasing the appeal of dollar-denominated assets.

Signs of a stronger labour market and increased consumer spending would offer more evidence that inflationary pressure will pick up, which could push yields and the dollar even higher, traders said.

The New Zealand dollar edged up to $0.7175 after Prime Minister Jacinda Ardern said she is exploring quarantine-free travel with other countries as she plots a course for re-opening the economy.

The Australian dollar followed the higher and rose to $0.7735.

The traded at 6.4525 per dollar, extending a pullback from an almost three-year high reached on Monday as overseas-listed Chinese firms bought dollars for dividend payments.

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