United States dollar climbs on positive inflation data

An Unexpected Journey       A BOE rate increase in May has gone from outside bet to sure thing and back again              Source Bloomberg

NEW YORK, May 1 (Reuters) - The dollar broke into positive territory for the year and US bond yields inched higher again on Tuesday as the recent rise in oil prices fueled expectations the Federal Reserve could flag more interest rate hikes at its policy meeting this week.

The U.S. central bank has been trying for years to lift subpar inflation - seen as a sign of anemic economic activity - to the central bank's long-run objective of 2%. Core inflation was up 1.9% in March from a year earlier.

The euro fell 0.2 percent to $1.2058 EUR= , not far from the $1.2055 it hit at the end of last week, the weakest level since mid-January.

The so-called core PCE price index - the Federal Reserve's preferred measure of inflation - rose 0.2 month-on-month in March after a similar gain in February.

The Fed raised its benchmark overnight lending rate at its March 20-21 meeting by a quarter percentage point to a target range of between 1.50% and 1.75%.

Consumer prices stayed flat in the month of March itself, while consumer prices minus volatile food and energy rose 0.2 percent.

Last month´s increase was in line with economists´ expectations. To expect rates would remain at abnormally low levels indefinitely when the principal concern of the Fed during the previous 10 years was deflation is unrealistic. They won't provide a quarterly update of their projections for the rate path until they get together again in June.

Fed officials are scheduled to convene on Tuesday and Wednesday for a regular policy meeting.

With trade tensions between China and the United States easing. a delegation of USA officials are expected in China later this week for trade negotiations.

Away from the favorable base effects, inflation is rising thanks to a tightening labor market. The government reported last Friday that wages and salaries recorded their biggest increase in 11 years in the first quarter.

Analysts are expecting strong US growth throughout 2018, spurred by increasing federal spending and a rush of economic activity spurred by the 2017 tax cuts.

Consumer spending on whole rose 0.4 percent in March after decreasing 0.2 percent in February.

Big picture: The U.S. economy is growing soundly almost nine years into an economic expansion, but it was inevitable that such a long period of growth would eventually trigger higher inflation.

As a key driver of long-term interest rates, a 10-year Treasury note yield of 3 percent or more pushes long-term borrowing costs to a level that can have a material impact.

Americans boosted their spending by 0.4 percent in March, the best showing in three months.

The US currency also gained versus the Canadian and Australian dollars, the latter down half a percent and close to its 4-1/2 month low reached last week.

The two-month pullback came after strong holiday spending coupled with hurricane-induced purchases in the fourth quarter.

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