The dollar index strengthened 0.2% on Monday with the help of USD/JPY's 1% surge toward 2015's highs, a failed EUR/USD bounce on French election results nL2N2W90IO and modest gains against most other currencies except for the Swiss franc, which has usurped some of the yen's safe-haven role.
EUR/USD held onto 0.1% gains after falling back from the early 1.0955 France-related high supported by rebounding Bund-Treasury yield spreads.
Two-year Bund-Treasury yield spreads have rebounded 22 bps from last week's lows, aided by ECB meeting accounts lifting rate hike and balance sheet rundown expectations nL2N2W50VL.
EUR/USD remains dangerously close to multi-year trendline and March trend low supports guarding against a slide toward 2020's 1.0636 nadir on EBS.
Markets project the ECB will raise rates 70 bps by year-end versus the Fed's 220 bps.
Sharp Treasury curve steepening plays weighed on 2-year Treasury yields and boosted longer-term yields, as markets factor in potential Fed balance sheet reduction signaled in minutes from the last meeting nS0N2UR064.
Buying of short-term Treasuries could also be locking the nearly 2% surge in yields since December on the notion that the bulk of Fed rate hikes have already been priced in.
Tuesday's U.S. CPI, forecast up 1.2% month-on-month and an eye-watering 8.5% year-on-year versus 7.9% in February will inform the Fed's May 4 policy decisions.
A New York Fed consumer survey showed one-year inflation expectations rising to 6.6% from 6.0% in March, a new high for the series begun in 2013 nS0N2VH02H,
It also recorded a survey low of 23% who saw their household finances improving over the coming year as borrowing costs rise and inflation outstrips wage increases.
Stagflation conditions appear worse in Europe due to the war in Ukraine and need for ECB assistance in keeping funding costs low, particularly for economies on the periphery, while a weakening Chinese economy and COVID lockdowns present further risks nL2N2W4049nL2N2W904M.
USD/JPY sprinted toward 2015's 125.86 peak, the highest since 2002, with a roughly 1% gain and holding near its 125.77 Monday high on EBS.
The yen was sold heavily across the board, disadvantaged by the BOJ's 0.25% cap on JGB yields up to the 10-year maturities as the Fed and other central banks hike rates or signal tightening.
That leaves Treasury yields key for USD/JPY, thus the market's focus on Tuesday's U.S. CPI and Thursday's ECB nL2N2W911L.
Sterling saw an inside day with little net change.
The downtrend was cushioned by falling short-term Treasury yields.
Mediocre UK GDP growth, a BOE seen cautious about tightening too much and risk-off flows make upside a bigger ask unless peak Fed hike pricing is reached.
The Australian and Canadian dollars both fell about 0.5% against the U.S. dollar with risk off, Chinese demand in question and energy prices retreating further.
Also dragged down by derisking were bitcoin and ether, off 4% and 5.6%.
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