The US Dollar Index (DXY) found support on strengthening Treasury yields to close out the trading week. The index, which gauges the greenback against a basket of currencies, will settle the trading week with a loss, but it is still up 2% on the year. With inflation fears entrenched in the financial markets, where will the buck head moving forward?

According to the Bureau of Labor Statistics (BLS), producer prices surged 2.8% year-over-year in February, slightly edging out the median estimate of 2.7%. On a monthly basis, the producer price index (PPI) rose 0.5%, matching market forecasts.

This was the largest increase in the PPI since December 2009, driven by higher goods prices. Services prices were relatively flat.

The University of Michigan released its monthly preliminary data for March. Current economic conditions increased to 91.5, consumer sentiment climbed to 83, consumer expectations advanced to 77.5, inflation expectations dipped to 3.1%, and five-year inflation expectations were unchanged at 2.

Treasurys dominated both the foreign exchange markets and the broader equities arena. The benchmark 10-year bond shot up 0.094% to 1.621%. The one-year bill was flat at 0.079%, while the 30-year Treasury surged 0.101% to 2.382%.

Increasing inflation concerns are driving the higher bond yields. On Wednesday, the much-watched 10-year auction took place, and the demand was tepid. This had sparked a push in stocks in the middle of the trading week.

President Joe Biden signed the America Rescue Act 2021, a $1.9 trillion coronavirus stimulus and relief package. This includes $1,400 direct-income support payments and extended jobless benefits. Leading Democrats are already promising to put forward another stimulus package later this year. With the budget deficit already topping $1.05 trillion in five months, and before the president’s spending efforts, could the US government afford any more outlays?

The US Dollar Index rose 0.28% to 91.67, from an opening of 91.43. The DXY will record a weekly loss of 0.3%, but it remains up 2% year-to-date.

The USD/CAD currency pair tumbled 0.52% to 1.2471, from an opening of 1.2534, at 17:36 GMT on Friday. The EUR/USD declined 0.26% to 1.1954, from an opening of 1.1988.