USD rises on higher Bond Yields, Inflation
On Friday, the USD sharply rose versus major currencies as bond yields rose, and economists were convinced of even higher inflation in the coming months. Building on more robust retail sales, which exceeded expectations, the greenback shook off bears and rose. The USD's strength could further be catalyzed by prospects of a faster economic recovery considering the Coronavirus vaccine program's relatively successful rollout.
How the United States wriggles itself out of the Coronavirus-induced slump without causing a sharp spike in inflation will determine the long-term trajectory of the USD. In the meantime, analysts are confident. Made worse by events in Europe, especially the slow rollout of vaccines, the Euro could slide not only against the USD but versus the GBP--whose distribution of vaccines have been much more effective. Simultaneously, the UK's Gilt yields are rising, impacting the Euro, subsequently pushing EUR/GBP pair even lower.
Impact on the USD:
Bullish. The USD valuation could rise as Yields edge higher. Interestingly, the New York FED President, John Williams, said this is not a concern. It is a direct response to their intervention and stimulus packages that must be borrowed and repaid. In his view, concerns about the $1.9 trillion package are excessive. The economy will take more time before it achieves full employment and the two percent inflation target reached.
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