**U.S. Dollar Gains Ground as Treasury Yields Rise: Analysis for EUR/USD, GBP/USD, USD/CAD, USD/JPY**
*Based on the original article by Vladimir Zernov, FX Empire*
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**Overview**
The U.S. Dollar surged against its major counterparts on Thursday, buoyed by a sharp rise in U.S. Treasury yields. As investors weighed in on the impact of resilient economic data and the latest signals from the Federal Reserve, the greenback benefitted from a climate of reduced risk appetite and growing uncertainty over the timing of Fed rate cuts. In this extended analysis, we will examine the primary drivers behind the dollar’s latest rally and provide technical outlooks for the EUR/USD, GBP/USD, USD/CAD, and USD/JPY pairs.
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**Key Drivers Supporting U.S. Dollar Strength**
Several forces coalesced this week to push the U.S. Dollar higher:
– **Rising U.S. Treasury Yields:** Benchmark 10-year U.S. Treasury yields climbed, underlining the market’s expectation that the Fed will keep rates elevated for longer than previously thought.
– **Stubborn Inflation and Mixed Data:** U.S. inflation remains above the Fed’s 2 percent target. Recent data, particularly a robust Producer Price Index (PPI) and steady Consumer Price Index (CPI) figures, signaled that price pressures might persist.
– **Fed’s Recent Communications:** Following the latest Federal Open Market Committee (FOMC) meeting, Fed officials, including Chair Jerome Powell, re-emphasized a cautious approach to interest rate cuts, highlighting the need for greater confidence that inflation is moving sustainably towards target.
– **Risk-Off Sentiment:** Persistent geopolitical tensions and uncertainty around global growth have increased demand for safe-haven assets, further supporting the dollar.
– **Central Bank Divergence:** While some global peers, such as the European Central Bank and the Bank of England, are sounding dovish, the Fed’s policy path remains more hawkish, strengthening the dollar’s appeal.
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**EUR/USD: Euro Under Pressure**
The EUR/USD pair slid lower, with the euro retreating beneath the 1.0800 level as the U.S. Dollar continued to gather momentum. The divergence in monetary policy between the European Central Bank (ECB) and the Federal Reserve remains at the forefront of traders’ minds.
*Key Factors Influencing EUR/USD:*
– **ECB Rate Cut Expectations:** Despite the euro area turning in better-than-expected GDP data, inflation has moderated, keeping the ECB on course for a potential rate cut as early as June.
– **Yield Differential:** The climbing U.S. Treasury yields increase the yield premium for holding dollars over euros, placing downside pressure on EUR/USD.
– **Technical Analysis:**
– The pair broke several layers of support, with 1.0800 giving way to the downside.
– Next, traders are eyeing the 1.0785 support, near the early April lows. A break below this level could open the door to further declines toward the 1.0725 zone.
– On the upside, the 1.0840 resistance now looms as the first barrier, followed by the psychological 1.0900 mark.
*Summary for EUR/USD:*
Unless the eurozone data significantly surprises to the upside or dovish Fed comments emerge, EUR/USD is likely to remain under pressure, testing lower technical support levels.
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**GBP/USD: Sterling Slumps as BoE Dovishness Emerges**
GBP/USD also fell on Thursday, as traders took note of the latest Bank of England (BoE) meeting. While the BoE held its policy rate steady at 5.25 percent, two members unexpectedly voted for a cut, and Governor Andrew Bailey’s remarks were widely interpreted as dovish.
*Key Factors Affecting GBP/USD:*
– **BoE Forward Guidance:** Governor Bailey noted encouraging signs that inflation is cooling. Markets are
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