Dollar holds gains after inflation surprise; Bitcoin partly recovers

The logo of the Bitcoin digital currency is seen in a shop in Marseille, France, February 7, 2021. — Reuters pic
The logo of the Bitcoin digital currency is seen in a shop in Marseille, France, February 7, 2021. — Reuters pic

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LONDON, May 13 — The dollar held on to its gains in early European trading today, having strengthened in the previous session after a surprisingly large rise in US consumer prices fanned inflation fears.

Data showed that US consumer prices increased by the most in nearly 12 years in April, sparking a “risk-off” move in global markets: equities and riskier currencies fell while US Treasury yields rose.

Market attention now turns to US weekly jobless claims due at 1230 GMT and retail sales numbers on Friday for guidance on whether upward pressure on prices will persist.

US Federal Reserve Vice Chair Richard Clarida said on Wednesday that weak job growth and strong inflation in April had not changed the central bank’s plan to maintain loose monetary policy.

The dollar index was steady at 90.734 at 0758 GMT, compared to Wednesday’s high of 90.798.

ING strategists wrote in a note to clients that risk-averse currency market moves were unlikely to persist, and the dollar index would weaken back below 90 in the coming weeks.

“While surging prices are a clear world-wide phenomenon and we agree that the Fed will have to hike earlier than it currently indicates (possibly in Q1 2023 rather than in 2024 as the Fed currently forecasts) an imminent tightening from the Fed seems unlikely,” ING said.

The Australian dollar, which is seen as a proxy for risk appetite, was down 0.3 per cent at 0.77055 versus the dollar, extending losses after having its biggest daily drop since March on Wednesday.

The New Zealand dollar briefly rose after Prime Minister Jacinda Ardern said she was exploring quarantine-free travel with other countries, but was last down 0.2 per cent.

The euro was up 0.1 per cent at US$1.2084. The Japanese yen was flat against the dollar, with the pair changing hands at 109.675.

Bitcoin rebound

Bitcoin plunged 17 per cent overnight when Elon Musk said in a tweet that Tesla Inc will no longer accept the cryptocurrency for car purchases.

The cryptocurrency dropped from around US$54,819 to US$45,700, its lowest since March 1.

But it recovered during the Asian session and was up 3 per cent at around US$50,908 at 0759 GMT.

Ether, the second biggest cryptocurrency after bitcoin, followed a similar pattern, dropping 14 per cent before bouncing back. Ether hit another record high on Wednesday and is up around 440 per centon the year.

Bitcoin is still up around 30 per cent from where it was just before Tesla said on February 8 that it had invested around US$1.5 billion in bitcoin and would accept it for payment in the near future. — Reuters

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