US Dollar Buoyed by Inflationary Concerns

As market participants withdrew bets of a rate cut by the Fed next week, the US dollar strengthened against all of the major currencies expect for the British Pound as fresh GDP data for the UK fell in line with expectations. As a result, the US dollar continued its chip away at the Euro as the pair traded in the 1.559 range, with bearish sentiment dragging down the European currency as cooling inflation sparked speculation that the ECB may turnaround from their hawkish stance. The US dollar picked up the biggest gains against the New Zealand and Australian dollar as the pairs fell to 0.781 and 0.931, respectively, with the Canadian dollar following behind amid a rise in oil prices. The low yielding Yen staggered lower against the US dollar as it fell to 104.4, with the Swiss franc trading below parity as the pair traded in the 1.036 range.
The stock markets reversed early morning losses as Ericsson posted an increase in US sales, and ended the week in positive territory as the markets climbed for the third consecutive session. As a result, the DJIA rose 42.91 points to 12,891.86 points, with American Express and Boeing picking up the biggest gains out of the big 30. The broader S&P500 gained 9.02 points to hold up at 1,397.84, with 117 stocks hitting a new 52 week high.
US Treasury demand wavered as the stock markets picked up, and triggered a sell off in treasuries as many investors pulled out of risk free bonds. As a result, the benchmark 10-Year yield jumped to 3.870 percent from 3.827 percent, while the 2-Year yield surged to 2.393 percent from 2.366 percent.
Looking ahead, we expect major event risks for the currency markets as 1st Quarter GDP figures are due out for on Wednesday at 12:30 GMT, and will be followed by the FOMC rate decision at 18:15 GMT. We expect the rise in volatility to carry throughout the rest of the week as the ISM Manufacturing index will be released on Thursday at 14:00 GMT, with the major events for the week coming to an end on Friday after the Non-Farm Payroll release at 12:30 GMT.