US dollar falls back as Treasury yields edge down

The US dollar seems set to end the week lower against most currencies, as “risky” assets have rallied and US Treasury yields have edged down a bit. This fall back in the dollar and US yields is somewhat surprising in light of the stronger-than-expected inflation data released Wednesday. But we think those data add to evidence that inflationary pressures in the US remain strong, and will gradually push Treasury yields, and the dollar, higher. And while this week’s rebound in risky assets suggests that concerns about the global economic recovery are fading, the latest activity data from China and the US (due on Monday) are likely to set the tone for FX markets next week.