(New throughout)
By Kate Duguid
NEW YORK, May 10 (Reuters) - The dollar languished at around
2-1/2 month lows on Monday as investors bet that rising
inflation would erode the currency's value as the U.S. Federal
Reserve maintains its loose monetary policy.
The five-year breakeven inflation rate - which measures
expectations of inflation five years out - reached its highest
since April 2011 on Monday. The 10-year breakeven inflation rate
- a measure of expectations of inflation in 10 years time - rose
to its highest since March 2013.
A weaker-than-expected jobs report on Friday helped persuade
market participants that the Fed would keep rates low and
continue purchasing assets, even if inflation rises. The United
States created a little more than a quarter of the jobs that
economists had forecast last month and the unemployment rate
unexpectedly ticked higher. "I think the biggest problem for the dollar right now is
what's happening to real yields, which continue to tumble. We're
seeing inflation breakevens continue to push higher," said
Daniel Katzive, head of foreign exchange strategy North America
at BNP Paribas. "This is creating a lot of vulnerability for the
dollar."
In recent years, rising inflation expectations have helped
the dollar because investors have assumed interest rates would
be raised in response to higher prices.
The dollar index =USD , which measures the greenback
against six rivals, was last at 90.205, up 0.06% on the day,
having earlier hit its lowest since Feb. 25.
The market this week will be focused on U.S. consumer price
data reported Wednesday as well as retail sales on Friday.
Wednesday's CPI data will show the state of inflation today, and
while that may have some effect on the market, the higher
breakeven rates seen Monday reflect broader bets that inflation
will rise in the next several years.
"The Fed will let inflation run hot into 2023. I would be so
shocked if the Fed hiked interest rates in 2022," said Greg
Anderson, global head of foreign exchange strategy at BMO
Capital Markets.
The British pound GBP=D3 was the biggest gainer among the
G10 currencies, rallying as high as $1.416, the highest since
Feb. 25. It was last up 1.02% at $1.413. This was despite
Scotland's leader saying that another referendum on independence
is inevitable after her party's resounding election victory.
Also benefiting was the Canadian dollar CAD= , which was
0.36% stronger on the day to $1.209, the highest since September
2017.
In cryptocurrencies, ether ETH=BTSP extended this month's
record run, surging to an unprecedented $4,148.88. The
second-biggest digital token has rallied 41% so far in May and
was up 4.52% on Monday.
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World FX rates https://tmsnrt.rs/2RBWI5E
USD positions https://tmsnrt.rs/3xWuzMe
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