The US dollar gains as Treasury yields rise – Photo: Getty Images Following the Memorial Day break in the United States, the US dollar index (DX
Following the Memorial Day break in the United States, the US dollar index (DXY) surged back over 101.7, aided by new jumps in US Treasury yields, with the 10-year Note yield rising to 2.8%, while eurozone inflation spiked to an all-time high of 8.1% year-on-year in May, well above market forecasts of 7.7%.
The US dollar welcomed recent remarks by Federal Reserve officials that revived expectations of Fed rate hikes, which had waned in recent weeks. The Fed’s Christopher Waller said yesterday that he favours hiking rates by another 50 basis points for several meetings, or until inflation falls closer to the 2% target.
US bond yields also increased in tandem with a fresh rise in inflation expectations, as oil (WTI) prices soared 2% on the day to $118 per barrel on Tuesday, the highest level since 9 March, after EU leaders’ decision to ban 90% of Russian petroleum by the end of 2022, reviving fears of a tighter global crude market.
EUR/USD pulled back by 0.4% to 1.073 after hitting an intraday high of 1.0786 yesterday.
Following May inflation shocks in Germany, Spain, and France, the eurozone saw record-high inflation in May 2022, fuelled not only by new increases in energy prices (39.2% vs 37.5% in April) but also by increases in services (3.5% vs 3.3%).
The surge in core inflation (which excludes energy and food) to 3.8% year-over-year, vs market estimates of 3.5%, is a sign that inflationary pressures are spreading like wildfire throughout the consumer basket, and is a major source of market concern.
Chart of the day: eurozone inflation hit a record high in May
Eurozone inflation hit a new all-time high in May – Photo: Capital.com / Source: TradingviewGBP and NZD slide on inflation worries
Sentiment towards high-beta currencies, such as the British pound (GBP) and the New Zealand dollar (NZD), has weakened as Treasury yield rates climb and new inflationary worries emerge.
The cable (GBP/USD) has erased its past session gains, reverting to $1.26 after hitting 1.266 yesterday. The Kiwi dollar (NZD/USD) edged down by 0.6% on the day to $0.651 after hitting 0.656 yesterday.
The Japanese yen (JPY) also weakened by 0.3% on the day as US yields rose and after industrial production data in Japan contracted by 1.3% in April, surprising market expectations on the downside (-0.2%).
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Major pairs: Top risers and fallers today – 31 May 2022
Major currencies: Today’s top risers and fallers, 31 May 2022, 11:30 UTC – Photo: Capital.comNorwegian krone rallies on oil, EM currencies weaken
The Norwegian krone (NOK) is the day’s best performer, increasing 0.3% against the US dollar, propelled by further gains in Brent crude, which is on a nine-session winning run and has surpassed $119/barrel after Europe enacted an oil embargo that affects two-thirds of Russia’s seaborne exports.
This event has certainly validated expectations regarding increased Norwegian crude oil shipments into Europe, supporting the krone.
Today’s dollar resurgence is hurting emerging currencies. The South African rand (ZAR) is down by 0.7%, the Mexican peso (MXN) by 0.4%, and the Korean won by 0.3%.
Forex market heatmap – 31 May 2022
Forex market heatmap 30 May 2022, 11:30 UTC – Photo: Capital.comRead more
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