US recap: Dollar up for fourth-straight week led by yen’s fall

Aug 11 – The dollar managed a modest gain on Friday as Treasury yields from 2- to 10-year tenors surged 7-10bps on waning expectations for eventual Fed cuts and concerns inflation will not dissipate as quickly as hoped.

The dollar index is probing key resistance that has confounded a breakout toward June’s highs this month.

Treasury yields are also biased higher on the risk US fiscal imbalances will increase. That after the recent Fitch downgrade of US debt and a surprise surge in how much the government says it will need to borrow.

Treasury yields rose on Thursday and Friday after seemingly sedate US CPI and modestly higher PPI, along with slightly softer Michigan sentiment. Consumers’ 1-year inflation expectations fell 0.1% again to 3.3%. Normally this data would not be greeted with sharply higher Treasury yields.

EUR/USD fell 0.3% and is nearing the 55-day moving average that caught August’s prior slides, now by 1.0940. Bund yields were also sharply higher, but risk aversion in European and Chinese markets favored the dollar.

USD/JPY rose modestly, but its uptrend is so far stymied by June’s 2023 high at 145.07 and worries Japan’s MoF may want to keep the yen from falling below 145 again; a level it previously defended.

Actual FX intervention looks less likely near current levels given the sharp drop in Japan CPI from December’s 10.2% peak.

Sterling rose 0.12%, but was well off Friday’s highs scored after above-forecast UK GDP sent gilt yields skyward, including a roughly 20bp surge in 10-year yields. Pricing in of two more 25bp BoE hikes became embedded from December through June.

The downside for the pound is that higher for longer rates and yields are headwinds for the economy.

USD/CNH rose 0.22% on imploding Chinese bank loans, that as the government looks to patch local government financing holes.

AUD/USD fell 0.25% to its lowest since June 1.

Tuesday’s US retail sales are the next major release.

(Editing by Terence Gabriel; Randolph Donney is a Reuters market analyst. The views expressed are his own.)