NEWS / Monetary Policy

US trade data supports dollar, dents bonds

LONDON - The dollar rose and government bond prices fell on Friday after U.S. trade data showed a jump in import prices, reigniting concerns about inflation and the need for more rate hikes from the Federal Reserve to control it.

The Department of Commerce said the U.S. trade deficit widened to $63.4 billion in April, up from March's $62 billion deficit but slightly less than the $65 billion shortfall expected on average by economists.

But import prices rose 1.6 percent, more than double the rate expected, as the cost of petrol and industrial supplies climbed.

"When you are in a period of inflation phobia, this is not good news. It's not raging inflation, but it's a little worse than expected," said Keith Hembre, chief economist at FAF Advisors in Minneapolis.

The euro slipped against a broadly stronger dollar to a fresh one-month low below $1.26, while the dollar edged up 0.1 percent to 114.25 yen.

U.S. Treasuries sold off as the data gave weight to arguments the Federal Reserve will continue to raise interest rates at its meeting later this month.

The yield on benchmark 10-year notes rose to 5.013 percent from below 5 percent shortly before the data.

Stocks in Europe and Asia rose, recouping some of the previous session's sharp losses, but U.S. stock futures were mixed, pointing to a cautious open on Wall Street.

Rates will stay in focus with Federal Reserve Bank Chairman Ben Bernanke due to speak at the Massachusetts Institute of Technology at 1400 GMT.

A series of hawkish comments from various Fed officials have boosted expectations the U.S. central bank will raise rates to 5.25 percent at its June 28-29 meeting.