Dollar inches lower as Treasury yields hold firm

© Reuters. FILE PHOTO: An employee counts U.S. dollar bills at a money exchange in central Cairo, Egypt, March 20, 2019. REUTERS/Mohamed Abd El Ghany./File Photo

By Stephen Culp

NEW YORK (Reuters) - The dollar edged lower on Monday as inflation jitters, exacerbated by record high prices paid in a regional U.S. manufacturing survey, benefited riskier currencies at the greenback's expense.

But the U.S. 10-year Treasury yield was little changed as market participants sought clues regarding the Federal Reserve's tolerance for near- and medium-term inflation.

"Given that since the dollar's sell-off last week it hasn't been able to bounce much, it tells me that the driver is not the foreign currency market but the interest rate market," said Marc Chandler, chief market strategist at Bannockburn Forex in New York. "And without higher interest rates it's hard to see how the dollar gets much traction."

The U.S. Federal Reserve is expected to release the minutes from its April monetary policy on Wednesday, which market participants will scrutinize for clues regarding the central bank's views on current inflation spikes.

"The Fed is still saying they're going to be very patient," Chandler added. "If the U.S. doesn't offer higher interest rates, the dollar bears the burden, and that's where we are now."

The Empire State report from the New York Federal Reserve showed a survey record high of prices paid by manufacturers in New York state as materials producers struggle to keep up with booming demand.

The dollar index was last down 0.14% at 90.157. The euro gained 0.09% to $1.2159 and the dollar fell 0.15% to 109.175 Japanese yen.

As economies re-open for business, resurgent demand combined with supply shortages has put commodity prices on an upward trajectory.

Strengthening crude oil prices boosted the Canadian dollar but the Norwegian crown lost ground against the greenback.

And despite higher metal prices, the Australian dollar also edged lower.

Chandler believes central bank policy is taking the lead in influencing the value of currencies typically sensitive to commodity prices.

Bitcoin dropped to a three-month low after Tesla (NASDAQ:TSLA) Inc boss Elon Musk suggested over the weekend that the electric automaker may have already sold some of its holdings in the digital currency.