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Dollar firms as inflation, rate hike expectations push up bond yields

NEW YORK (Reuters) – The dollar gained slightly on the day on Monday as Treasury yields rose on expectations the Federal Reserve will need to hike interest rates sooner than previously expected to quell rising price pressures.

FILE PHOTO: U.S. dollar banknote is seen in this picture illustration taken May 3, 2018. REUTERS/Dado Ruvic/File Photo

Market participants expect the U.S. central bank will need to act as inflation looks to be stubbornly persistent and unlikely to fade anytime soon.

Global increases in inflation are also increasing expectations that rate hikes will need to be global, as New Zealand faced its highest price pressures in a decade and after Bank of England Governor Andrew Bailey sent a fresh signal that the central bank was gearing up to raise interest rates as inflation risks mount.

“Global bond markets are finally waking up to the risks that inflation isn’t as transitory as most central banks insist,” Win Thin, global head of currency strategy at Brown Brothers Harriman, said in a report.

The dollar index gained 0.03% against a basket of currencies to 93.99, after earlier rising to 94.17.

The euro rose 0.03% to $1.1601, after earlier dropping to $1.1570. It has fallen 5% this year.

Sterling hit a 20-month high against the euro of 0.8427, before rebounding to 0.8451.

The kiwi hit a one-month high of $0.7105 against the greenback, before retracing to $0.7071.

Analysts at Bank of America noted on Monday that commodity-linked currencies, including the Norwegian krone and the Canadian and Australian dollars, had been the best performers since the summer as energy prices rise, while the euro and the yen had been the worst.

The yen was close to a new three-year low, with the dollar last up 0.06% at 114.28 yen, close to Friday’s 114.46 level that was last hit in October 2018.

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