The greenback’s decline came as U.S. bond yields fell, reducing the currency’s yield attraction
The dollar fell to multi-week lows against the euro and the yen on Wednesday, after an uptick in a U.S. consumer price gauge did not spark wider fears about accelerating inflation and the Federal Reserve’s tapering, pushing down U.S. bond yields.
The dollar dropped 0.2% to 108.80 yen, reaching its lowest level in three weeks, down nearly 2 percent from a one-year peak hit at the end of last month.
The euro rose 0.1% to $1.1960, reaching its highest level since mid-March, as it extended a rally from a five-month low of $1.1704 set on March 31.
Against the Swiss franc, the U.S. currency fell to 0.9201 franc, near its lowest levels in six weeks.
While the dollar was stuck near its familiar ranges against most other currencies, the dollar’s index against a basket of six major units dropped to as low as 91.724, its lowest since March 22.
The greenback’s decline came as U.S. bond yields fell, thus reducing the currency’s yield attraction, as solid demand for a 30-year bond auction trumped rises in consumer inflation.
The 10-year U.S. Treasuries yield fell to 1.620%, also its lowest levels since late March.
The U.S. consumer price index climbed 0.6% in March compared with the previous month, the largest gain since August 2012, and advanced 2.6% from a year earlier, both 0.1 percentage point above market expectations.
The core CPI, which excludes volatile foods and energy, was also a bit stronger than expected, with a year-on-year (YOY) rise of 1.6%.
Inflation has been expected to accelerate in the April-June quarter. Although the latest reading was a bit stronger than expected, it wasn’t out of the blue, said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
Speculation that firmer inflation could propel the Federal Reserve to reduce its quantitative easing and low interest rates earlier than it has pledged has been a major driver of the dollar’s rally in Q1.
It seems like the markets have already priced in economic normalisation as U.S. bond yields have risen considerably, with the five-year yield almost reaching 1% at one point, said Minori Uchida, chief currency strategist at MUFG Bank.
Elsewhere, the New Zealand dollar added 0.4% to $0.7086 after the country’s central bank held its official interest rate and asset purchase programme steady, as widely expected.
The Singapore dollar gained 0.25% to S$1.3376 after the Monetary Authority of Singapore (MAS) left its exchange-rate policy settings unchanged.