The US dollar in the news is said to hold strong as inflation drives higher yields. The US dollar found its footing on Monday due to weak economic data from China. Added to this, rising oil prices have made investors nervous about inflation pushing interest rates higher. In the Asian session, the greenback rose slightly as US yields held off the declines suffered last week, with a gain of about 0.2% against the euro and also about 0.1% against the yen, which took the Japanese currency close to a fresh three-year low.

The kiwi was an outlier, jumping almost 0.5% to a one-month high of $0.7105 before falling back to $0.7071 on the back of a decade-high quarterly inflation reading. Sterling also held steady after a bellicose weekend statement from Bank of England Governor Andrew Bailey, who said policymakers “must act” as rising energy prices push consumer prices higher.

China’s economic growth slowed to its slowest pace in a year in the third quarter, data showed on Monday, as power shortages hampered factory output. In commodities, crude oil prices rose more than 1% to test a 2018 high. The data also suggested the yuan currency had weakened slightly. But taken together, the Chinese slowdown, the power crunch and signs around the world that pressures on energy costs are taking their toll, prompting investors to be cautious as they brace for a bumpy period.

"For some time, our main argument has been that two factors have come together to support the dollar itself: a moderation in global growth, and a Fed that is taking a gradual path to eventual rate hikes," HSBC analysts said in a note. "This has come sooner than we had hoped." The dollar last bought 114.35 yen, trading at $1.1579 against the euro, up about 0.2% at $0.7402 per Australian dollar.

The dollar index also rose 0.1% to 94.102, having edged back from a one-year high of 94.563 hit last week. Minutes from the Federal Reserve’s September meeting were released on Wednesday, confirming traders’ expectations that the central bank will begin tapering asset purchases this year. The results suggested policy makers are poised to begin tapering soon and wrap up the process by the middle of next year. Fed fund futures are priced to begin hiking interest rates. Once that is done, markets that have been moving forward could raise expectations as soon as the third or fourth quarter of 2022.

Meanwhile, the two-year Treasury yield jumped to a 19-month high of 0.421%. Swap pricing also showed pressures rising globally, with almost 30% higher with the Bank of England likely to hike interest rates this year, with nearly 80 basis points of hikes priced in by 2022. Sterling was at $1.3734, just below Friday’s one-month high of $1.3773.

Meanwhile in New Zealand, where consumer prices are rising at the fastest clip since 2010, analysts reckon the central bank should stick to its hiking path even as Auckland’s lockdown is extended. “That just makes the case that they should stick to that path,” said Westpac analyst Imre Speizer. “This inflation is very strong,” Speizer added. Even in Australia, where the central bank insists it expects to keep rates on hold until 2024.

Swaps that price in increases will kick in mid-2022 for a 100bps hike before 2024 begins. With a quiet calendar on Monday, traders are looking ahead to the release of the Fed’s “Beige Book” on economic conditions on Wednesday and are keeping an eye on China’s credit market where a number of developers are due coupon payments this week. That’s all for today’s Forex news on “Dollar Holds Strong on Inflation, Higher Yields.”