After hitting a six-month low earlier last week, the U.S. dollar traded higher on Monday, adding to a two-day rally, after a major rating agency lowered the credit rating on Ireland and investors braced for several big bond auctions later this week.

The recent rise in the dollar comes as there has been increasing investor worries about inflation -- most evident from the recent rise in long-date bond yields -- and a rise in commodity prices.

At 3 p.m., the U.S. dollar had gained 0.6% against the euro to $1.3894 while the dollar gained 0.3% against the Japanese yen to 98.39 per dollar.

The dollar’s rally against the euro comes after the major rating agency Standard & Poor’s cut Ireland’s long-term credit rating from AA+ to AA on concerns that the country’s hampered financial system could impair the government’s ability to borrow and pay back creditors. It’s the second time that Ireland’s credit rating has been cut this year.
In a note to investors, S&P left the door open for further rating downgrades if  “asset quality in the Irish banking system deteriorates at a faster pace than we expect."

Ireland has been one of a few stories of financial distress within the Eurozone recently. Ireland was the first of the Eurozone economies to enter recession as a result of the financial crisis of 2008 that struck its major financial houses like Anglo Irish Bank. That financial house was nationalized earlier this year.

It may be the first of many European economies to suffer a rating agency downgrade. Last month, S&P cut its outlook to negative for the United Kingdom economy and its government.

In a note to investors, JPMorgan Chase’s David Hensley said he expects that the European economy will lag the U.S., Asia and Latin American economies into recovery by at least a quarter.

The dollar has also rallied since Friday after the better-than-expected jobs report from the Labor Department, which showed that the U.S. economy lost 345,000 jobs in May, considerably fewer than what economists had expected.
While the dollar is on a two-day rally, the U.S. dollar index, which tracks the dollar’s value against several of the major global currencies, has lost approximately 10% of its value since March -- as traders have expressed worry that inflation could begin to hamper economic growth once the economy begins to recover.

Long-dated bonds, often used a sign of inflation concerns, have seen their yields rise significantly in recent months. The benchmark 10-year bond closed on Monday at a yield of 3.889%, nearly double the yield the 10-year had at the beginning of the year.

The Treasury Department will auction $65 billion in bonds this week, which is expected to test the market’s tolerance for possible inflation concerns and could heavily influence the dollar later this week.