Dollar climbs for a 3rd day as short-end US yields rise

LONDON: The dollar tiptoed higher for a 3rd consecutive day on Friday since a surprisingly strong US inflation print shocked markets and prompted investors to advance their bets on a U.S rate hike to as early as mid-2022. With short-dated US Treasury yields edging higher - five-year bond yields rose to a February 2020 high - investors ramped up bets that US policymakers will be forced to raise interest rates sooner than later.

Against a basket of its rivals, the dollar index firmed 0.1% to 95.27, its highest level since July 2020. The greenback's push higher this week has seen it break above a two-month trading range with analysts predicting more gains.

"We don't think this is the end of the move and expect the US dollar to remain strong into the first half of 2022 as we will be going into the first half of 2022 with the Fed's taper coming to a conclusion and a looming rate hike will offer support for the dollar in this period," Mizuho strategists said.

The renewed strength in the dollar has injected fresh life in the moribund currency volatility markets as traders have scrambled to buy options to protect themselves against further dollar strength. A currency volatility index hit a fresh 6-month high.

Data on Wednesday showed a broad-based rise in US consumer prices last month at the fastest annual pace since 1990, calling into question the Fed's contention that price pressures will be "transitory" and fuelling speculation that policymakers would lift interest rates sooner than previously thought.