The dollar bounced from a one-year low on Monday as resilience in core U.S. retail sales, a rise in short-term inflation expectations and impressive Wall Street bank earnings raised market expectations for an interest rate hike in May.
Against a basket of currencies, the U.S. dollar index rose 0.15% to 101.82, standing some distance away from Friday's one-year low of 100.78.The euro fell 0.2% to $1.0965, while sterling slipped 0.22% to $1.2387.
"The U.S. bank earnings came out much better than expectations, which suggests that the U.S. economy is not so bad ... So I think that will increase for the Fed to continue raising interest rates," said Tina Teng, market analyst at CMC Markets. Money markets are now pricing in a roughly 81% chance that the Federal Reserve will raise interest rates by 25 basis points next month, up from about a 69% chance last week.
Short-term inflation expectations have also increased, with the University of Michigan's preliminary AprilYields on U.S. Treasuries jumped in the wake of the data releases on Friday, and remained elevated on Monday. The two-year U.S. Treasury yield , which typically moves in step with interest rate expectations, stood at 4.1137%, after hitting a roughly two-week top of 4.137% on Friday.Some hawkish Fed speak also aided the higher interest rate expectations, with Fed Governor Christopher
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