LONDON—The euro gave up post-French election gains on Tuesday and fell against the strengthening dollar, bolstered by high bond yields ahead of U.S. inflation data expected to reinforce bets on aggressive monetary tightening.
The data for March, due at 1230 GMT, is expected to show the biggest monthly rise in consumer prices in 16-1/2 years, according to a Reuters poll of economists, supporting bets for an aggressive policy response from the Federal Reserve.
The U.S. 10-year Treasury yields jumped above 2.80 percent to levels last seen in December 2018, bolstering the dollar.
The dollar index, which tracks its performance against a basket of six currencies, was up 0.1 percent at 100.1 at 1100 GMT, its highest level in almost two years.
The euro was down 0.16 percent against the dollar at $1.08660, after it rallied to $1.09550 on Monday following the news that President Emmanuel Macron beat right challenger Marine Le Pen in the first round of presidential voting.
“USD remains supported due to the Fed’s active monetary policy, but a lot has been priced in as regards monetary policy so that USD is probably going to find it increasingly difficult to appreciate further,” said You-Na Park-Heger, currency analyst at Commerzbank.
The U.S. dollar index is heading into its fourth consecutive quarter of gains amid expectations for higher interest rates. Money markets are pricing in 221 basis points of rate hikes by December.
Ahead of a European Central Bank policy meeting due later this week, money markets are pricing in about 70 basis points of interest rate tightening by December.
The dollar’s recent gains against the Japanese yen have been its most striking. It has strengthened almost 10 percent against the Japanese currency in the past three months as the Bank of Japan remained committed to maintaining ultra-easy policy.
Japanese Finance Minister Shunichi Suzuki said the government was closely watching the yen and that excess volatility and disorderly movements could have an adverse effect on the economy and financial stability.
The dollar also gained on the offshore Chinese yuan, reaching a two-week high of 6.390 before softening.
Sterling eased 0.1 percent against the dollar to $1.3015 after UK employment data showed jobless rate slipped further below its level immediately before the coronavirus pandemic, underscoring inflation risks in the labor market that has the Bank of England on alert.
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