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Dollar rises as U.S. Treasury yields at a four-week high


The Treasury Department saw soft demand for sales of two-year and five-year notes

The dollar rose Tuesday, giving back earlier losses, as benchmark U.S. Treasury yields reached a four-week high following some weak auctions.

The Treasury Department saw soft demand for sales of two-year and five-year notes. They came after data showed that U.S. consumer confidence unexpectedly improved in May after deteriorating for three successive months.

The bond market has turned around today and the dollar with it, said Adam Button, chief currency analyst at ForexLive in Toronto, citing the weak auctions and noting that the improving consumer confidence report reflects “stronger growth.”

U.S. economic data was better than expected in the first quarter and so far there are no major signs of deterioration in areas like the labour market, which some traders are waiting on before taking a more bearish view on the greenback.

Concerns that inflation will remain above the Fed’s target for longer are also providing some support for the dollar. Tuesday’s data showed that concerns about inflation persisted and many households expected higher interest rates over the next year.

Minneapolis Federal Reserve Bank President Neel Kashkari said on Tuesday that the U.S. central bank should wait for significant progress on inflation before lowering interest rates and added that the central bank could potentially even raise rates if inflation fails to drop further.

Consumer price inflation showing that prices rose less than expected in April briefly boosted hopes that the Federal Reserve is closer to lowering rates, but Fed officials have stressed that they want to see several more months of progress before easing policy.

The Fed is in no rush to reduce rates, said Button. He added, “the American economy is uniquely strong. It’s tough to bet against the U.S. dollar until the weakness is confirmed.”

This week’s main U.S. economic focus will be PCE due on Friday, which is the Fed’s preferred inflation measure.

The dollar index was 0.03% higher at 104.59, after earlier declining to 104.33. The euro added 0.01% to $1.0859. Sterling dropped 0.05% to $1.276.

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