Sat, December 03, 2022

Dollar Declined From 3-½ Month Highs Due to Treasury Yields

Dollar and riskier currencies

On March 9, the dollar backed away from 3-½ month highs as U.S. Treasury yields stabilized, allowing room for riskier currencies to make gains. Interestingly, the pound, Australian dollar, and New Zealand dollar strengthened their positions. 

As a reminder, the index that measures the dollar’s strength against a basket of other currencies fell 0.2% in early deals in London, at 92.181, after reaching a 3-½ month high of 92.506 during Asian trading hours. 

It is worth noting that, U.S. 10-year Treasury yields fell as low as 1.5350%, down for a second day.

Interestingly, traders are wary yields could rise further this week as the market will have to digest a $120 billion auction of 3-, 10-, as well as 30-year Treasuries. 

Importantly, stability is likely to remain the main topic of the day ahead of UST auctions. Moreover, the U.S. Bureau of Labor Statistics will release the information about inflation on Wednesday. Both factors are near-term for FX markets. 

The currencies of oil exporters and Dollar 

People should keep in mind that, in the near-term, the currencies of oil exporters should be favored over low yielders in the G10 FX space, with the rising oil price providing an offsetting factor to the challenging global risk environment.

For example, the Norwegian crown added 0.6% to 8.4898 per dollar. The Norwegian crown is an oil-linked currency. 

Interestingly, oil prices climbed in recent days on expectations of a recovery in the global economy as well as on a likely drawdown in crude inventories in the U.S. As a reminder, the U.S. is the world’s biggest fuel consumer. 

The Australian dollar added 0.7% to $0.7695. Also, the New Zealand dollar advanced 0.5% to $0.7149. 

Let’s have a look at the euro. It traded 0.3% higher at $1.18845 and sterling added 0.5% to $1.3886. 

The dollar index added more than 2% year-to-date. Interestingly, positive macroeconomic data, combined with accommodative monetary policy, lifted bond yields and hit highly valued U.S. technology stocks. All of the factors mentioned above helped the dollar index.

Importantly, the greenback’s rise comes in the face of broadly bearish forecasts laid out at the start of this year. 

It is worth noting that, all eyes will now be on the U.S. Federal Reserve’s two-day meeting next week. As a reminder, Fed Chairman Jerome Powell last week did not express concern about the rise in bond yields. The chance that the central bank will announce major policy changes is quite low. Nevertheless, this meeting is important and it is not surprising that people are waiting for the outcome of this meeting. 

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