US Dollar: Gains extend on hotter US inflation – MUFG

MUFG’s Michael Wan notes that a stronger-than-expected United States (US) April Producer Price Index (PPI) print has driven a hawkish repricing of Federal Reserve (Fed) expectations, lifting Treasury yields and supporting the US Dollar (USD). The report highlights that traders added around 20 basis points of tightening over the coming year, with 10-year yields at their highest since July and 30-year yields at 5%.

Hot PPI fuels hawkish Fed repricing

"The dominant macro story was a sharply hotter-than-expected US April PPI print - up 6% year-on-year, the fastest since 2022 and above all economist’s estimates - driven by war-related energy costs feeding into freight prices."

"More broadly, the higher-than-expected CPI and PPI readings this week pushed traders to price in approximately 20 basis points of additional Fed tightening over the coming year, drove 10-year Treasury yields to their highest since July, and sent 30-year Treasuries clearing at 5%."

"Boston Fed President Collins flagged that rate hikes may be necessary if inflation pressures broaden, though she noted the current shock has masked evidence that underlying inflation was still trending down."

"The dollar extended gains for a third consecutive session on the hawkish repricing, with the yen bearing the brunt, weakening to 157.88 against the dollar and approaching the May 6 high of 157.94."

"Equities shrugged off the inflation data, with the S&P 500 and Nasdaq closing at fresh records on Wednesday, driven by AI optimism and Cisco's 15% surge after a strong earnings beat and raised guidance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)