The US dollar climbed for a second straight session on Tuesday, rising 0.4% to 98.36 on the dollar index as US economic data showed continued inflation pressures. According to Reuters, the Consumer Price Index (CPI) increased 0.6% last month, matching economist estimates after surging 0.9% in March. In the 12 months through April, the CPI advanced 3.8%, marking the biggest year-on-year increase since May 2023 and exceeding the 3.7% forecast, after a 3.3% rise in March. As reported by Reuters, markets have largely priced out any chance of a rate cut from the Federal Reserve this year, while expectations for a hike of at least 25 basis points at the central bank's December meeting rose to 36% from 23.6% in the prior session, according to CME's FedWatch Tool.
Hopes for a peace deal on Iran faded as Iranian Parliament Speaker Mohammad Bagher Ghalibaf issued a stark warning about America's financial future, mocking the US Treasury's recent sale of $25 billion of new 30-year bonds at a yield above 5% - the first time since 2007 that a 30-year Treasury auction carried a 5-handle. According to Reuters, after a sharp rise in March as the war began, the dollar had retreated in April on optimism a deal to end the war could be reached. The latest stalemate has stoked supply concerns, with US crude rising 4.17% to $102.08 a barrel and Brent crude rising to $107.84 per barrel, up 3.48%. As reported by CNBC TV18, Trump had previously warned Iran that time is running out for them and they need to "get moving quickly" to reach a deal, with Axios quoted Trump telling them that Iran is "not where he wants them to be." The Economist reports that ten weeks into the Iran war, the great oil-market mystery is deepening, with America and China shielding the world from an oil catastrophe - but for how long can the US and Chinese go on doing this without Middle Eastern oil?
Kevin Warsh, US President Donald Trump's pick to be the next Fed chair, was confirmed by the US Senate to a 14-year term as Federal Reserve governor, which also approved the start of a 30-hour countdown that allows a vote to approve Warsh for a concurrent four-year term as chair as soon as Wednesday. According to Reuters, this development comes as markets grapple with the implications of rising inflation and its impact on monetary policy expectations. Adam Sarhan, chief executive at 50 Park Investments, noted that "this is the first inflation report where we're seeing consumer prices directly being impacted... how long will oil prices stay high? Is it going to be sticky? Until we see oil prices come down, inflation is here to stay," which is a concern for both markets and the Federal Reserve.
US Treasury yields reached concerning levels as the U.S. national debt now stands at $38.94 trillion - and climbing, with the Treasury paying roughly $3 billion a day in interest alone. According to Fortune, bond-market stress is arriving alongside hotter inflation data, with producer prices jumping 6.0% year-over-year in April - the largest 12-month increase since December 2022. The U.S. Treasury recently sold $25 billion of new 30-year bonds at a yield above 5% - the first time since 2007 that a 30-year Treasury auction carried a 5-handle. This matters because Treasury yields sit at the center of the financial system, with higher rates making the debt burden more expensive to service. Ray Dalio, founder of Bridgewater Associates, has warned that the U.S. is heading toward a "debt death spiral" - borrowing just to pay interest, with his solution being "There won't be a default - the central bank will come in and we'll print the money," which means dollar depreciation.
The dollar strengthened 0.33% to 157.66 against the yen as the Japanese currency had jumped suddenly earlier on Tuesday, stoking speculation of a "rate check," which is often a precursor to currency intervention. According to Reuters, U.S. Treasury Secretary Scott Bessent said the US and Japan believe that excess volatility in the currency market is undesirable, comments seen as offering support to Tokyo's recent round of intervention to prop up the yen. Japan intervened to prop up the currency two weeks ago, two sources familiar with the matter told Reuters. The dollar edged up 0.03% to 6.793 versus the offshore Chinese yuan ahead of talks between Trump and Chinese President Xi Jinping in Beijing this week, after reaching 6.7885, its strongest level since February 2023.
US futures traded with a negative bias as trading resumed on Sunday evening after the weekend break, with Dow futures down 100-120 points and S&P 500 and Nasdaq futures little changed. According to reports from CNBC TV18, the benchmark indices had sold off sharply on Friday, with the Dow Jones falling nearly 550 points while the S&P 500 and Nasdaq declined 1.2% and 1.5% respectively. The sell-off was attributed to traders booking profits from record highs amid rising bond yields, a sell-off in chip stocks, and US President Donald Trump warning he is "running out of patience" with Iran leading to a further jump in oil prices.
