US Dollar Rally Sustained by Stronger Than Expected US CPI Figures

A rise in consumer prices paired with a decline in oil prices strengthened the US dollar to pick up another round of gains, as the currency posted its biggest weekly gain against the euro in three years. Indeed, the euro fell to test support at 1.535, while the Canadian dollar continued to rack up losses to trade at 1.029 against the greenback. The low yielding Swiss franc trailed the most against the US dollar as the pair rose to 1.04, and was followed by the Japanese yen as the USD/JPY pair advanced to 108.2. On the other side of the spectrum, the high yielding Australian dollar picked up the biggest gain against the greenback thanks to hawkish comments made by RBA Governor Glenn Stevens. The Aussie was followed by the New Zealand dollar as it climbed to trade at 0.749. Finally, the British pound consolidated yesterday’s loss to trade at 1.947 against the US dollar.
Falling oil prices led the stock markets to recover from losses earlier in the week, but failed to post a weekly gain. As a result, the DJIA rose 165.77 points to 12,307.35 points, with 28 of the 30 components advancing. The broader S&P500 picked up 20.16 points to hold off at 1,360.03 points amid 775 stocks falling to a fresh 52 week low.
US Treasuries posted its worst week in 7 years as market participants anticipate the Fed to raise the interest rate later this year, and continued to fuel a rise in bond yields. As a result, the benchmark 10-Year yield rose to 4.261 percent from 4.217 percent, while the 2-Year yield inched lower to 3.039 percent from 3.046 percent.
Looking ahead, market participants expect increased volatility for the US dollar as Fed Chairman Bernanke and Vice Chairman Kohn are schedule to speak next week, with economists forecasting producer prices to increase to 6.7 percent from 6.5 percent. Amid the anticipated increase in the headline figure, the core measure is expected to hold at an annual rate of 3.0 percent.