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Dollar firms as yields rise and traders await US CPI for rate outlook

MUFG links the dollar rise to higher US Treasury yields and points to core CPI as the key driver for near term Fed rate expectations.

Reported · Written up by our desk · Major Pairs

The US dollar strengthened as US Treasury yields moved higher and equities sold off, a combination MUFG highlighted in its FX view led by Michael Wan.

MUFG said renewed US-Iran tensions and higher oil prices also added support to the dollar, while it flagged Fed Governor Christopher Waller’s hawkish comments as a factor keeping rate hike expectations in focus.

With the US CPI report, especially core inflation, due soon, MUFG noted that an upside surprise in core CPI could reinforce market expectations for additional US rate hikes, and it cited its team’s call for core CPI to rise 0.24% month over month.

The report said the CPI release would therefore be decisive for near term US rate expectations, as traders position ahead of the data.

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