The dollar edged higher against a basket of currencies on Friday, paring some of the week’s losses, as a stronger-than-expected rise in U.S. and Chinese inflation gauges drove up bond yields.
The U.S. Dollar Currency Index, which measures the greenback against a basket of six currencies, was 0.10% higher at 92.163.
Data on Friday, showed U.S. producer prices increased more than expected in March, resulting in the largest annual gain in 9-1/2 years, fitting in with expectations for higher inflation as the economy reopens amid an improved public health environment and massive government funding.
Inflation is expected to heat up this year, driven by pent-up demand and as the weak readings last spring drop out of the calculation. Prices tumbled early in the pandemic amid mandatory closures of non-essential businesses across many states to slow the first wave of COVID-19 infections.
Most economists and Federal Reserve officials believe higher inflation will be transitory because of labor market slack.
Earlier on Friday, data showed China’s factory gate prices beat analyst expectations and rose at their fastest annual pace since July 2018 in March, the latest sign that a recovery in the world’s second-largest economy is gathering momentum.
The dollar was also helped by data showing a second straight monthly drop in industrial production in Germany, further boosting the likelihood of Europe’s biggest economy having contracted in the first quarter.
Still, the dollar’s rally this year appears to have run out of steam. Despite Friday’s gains, the dollar index was on pace to finish the week down 0.9%, its worst weekly showing this year.
Sterling pared losses to trade little changed on the day after having touched a two-month low against the dollar in early London trading. It was still set for its biggest weekly drop against the euro so far this year, hurt by profit-taking after a strong first quarter.
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