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Leaping yields buttress dollar ahead of Fed meeting

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SYDNEY — The dollar was firm on Wednesday

after a rip higher in U.S. yields vaulted it up sharply on the

euro overnight, putting it back above support levels that have

held for the past few months in anticipation of rising U.S.

interest rates.

The euro fell about 0.7% on Tuesday, its sharpest

daily drop in a month, and is back on its 50-day moving average

at $1.1323. Two-year Treasury yields have leapt 15

basis points over two sessions to cross 1% and benchmark 10-year

yields stand at a two-year high of 1.8842%.

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The dollar has also regained support levels against the

Australian and New Zealand dollars and held sterling below its

200-day moving average.

The U.S. Federal Reserve meets to set policy next week and

traders are growing anxious about another hawkish surprise.

“A lot of (Fed) officials left us with hawkish impressions

right before going quiet (ahead of the meeting),” NatWest

markets’ strategist Jan Nevrusi said

“After (Tuesday’s) price action, there is slightly more than

one hike priced in for the March meeting, and going into next

week, I would imagine it oscillates within the lower end of the

25-50 basis point range.”

Fed funds futures are pricing three more hikes in

2022. Analysts say dollar strength could extend if traders start

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expecting rates to rise not just faster but further as well.

“We expect the U.S. rate rethink – and this latest shift

higher in yields reflects a push higher in the implied terminal

rate, rather than just a faster pace of increases initially – to

support the dollar in the first half of the year,” Societe

Generale strategist Kit Juckes said.

Moves in the U.S. bond market unsettled equity investors,

underpinning the safe-haven yen, which has held at

114.67 to the dollar.

The U.S. dollar index rose 0.5% on Tuesday and held

that gain at 95.768 on Wednesday.

Traders also have a wary eye on a delicate situation in

Ukraine. U.S. Secretary of State Antony Blinken will seek to

defuse a crisis with Moscow when he meets Russia’s foreign

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minister in Geneva this week.

The Australian dollar held below its 50-day moving

average at $0.7187. It has struggled to break resistance just

below 73 cents. The kiwi was pinned at $0.6771.

Sterling has taken a knock in recent sessions but

will be in focus later on Wednesday when British inflation

figures are due.

Annual headline inflation is seen hitting an almost

decade-high 5.2% and a surprise could trigger further bets on

Bank of England rate hikes and renew the pound’s rally.

It last sat at $1.3591.

========================================================

Currency bid prices at 0053 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.1326 $1.1327 -0.01% -0.38% +1.1330 +1.1320

Dollar/Yen 114.6900 114.5800 +0.02% -0.37% +114.6950 +114.6000

Euro/Yen

Dollar/Swiss 0.9171 0.9175 -0.03% +0.55% +0.9176 +0.9171

Sterling/Dollar 1.3590 1.3598 -0.03% +0.51% +1.3600 +1.3593

Dollar/Canadian 1.2506 1.2513 -0.04% -1.08% +1.2512 +1.2497

Aussie/Dollar 0.7179 0.7186 -0.13% -1.27% +0.7189 +0.7177

NZ 0.6765 0.6765 -0.01% -1.17% +0.6775 +0.6765

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook; Editing by Himani Sarkar)

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