The dollar hits five-month high as US treasury yields surge

The dollar rose in European trade on Thursday against a basket of major rivals, extending gains for the second straight session and scaling a five-month high as US treasury yields rally. 

Scorching US inflation data reduced the odds of a Fed interest rate cut in June, and hurt the expectations of rate cuts overall this year.

Now investors await important US producer prices and unemployment claims data later today to have a better picture of the economy.

The Index 

The dollar index rose 0.15% to 105.32, the highest since November 2023, with a session-low at 105.12, after closing up 1.05% on Wednesday, the largest profit since March 2023. 

US Yields

US 10-year treasury yields rose 0.45% on Thursday on track for the second profit in a row, scaling a five-month high at 4.568%. 

The gains came after the excellent US inflation data which showcased the continued inflationary pressures on the Federal Reserve.  

US Inflation

US consumer prices rose 3.5% y/y in March, the fastest pace since September 2023, and above estimates of 3.4%. 

Core prices rallied 3.8% in March, above estimates of 3.7%. 

US Rates

Following the data, the odds of a 0.25% interest rate cut by the Fed in June tumbled from 56% to just 16%, while the odds of such a cut in July fell from 80% to 43%. 

Now traders barely expect two interest rate cuts from the Federal Reserve this year totaling 50 basis points, down from 75 basis points before. 

The UBS bank now expects the Fed to start cutting rates in September. 

Important Data

Now investors await a batch of important data today to gather more clues on the future path of interest rates, including producer prices and unemployment claims data.