Fri, January 27, 2023

U.S. Dollar, Other currencies, and Fed Chairman Powell

Federal Reserve and expectations

Investors are closely monitoring the situation as they would like to gather more information about the situation. Interestingly, the dollar fortified its position against a basket of its peers on Thursday as a more orderly rise in U.S. Treasury yields provided support before a speech by Federal Reserve Chairman Jerome Powell. His speech may determine the trend for global bond markets as well as currencies.

It is worth noting that, the dollar also reached a five-month high against the Swiss franc as well as a seven-month high to the Japanese yen while holding on to gains most currencies as a renewed sense of calm in the Treasury market underpinned sentiment. 

Importantly, investors are closely monitoring the situation to see if Powell expresses concern regarding a recent volatile sell-off in Treasuries. Moreover, if there is any change in his assessment of the economy before the Federal Reserve’s next meeting, ending on March 17. 

Interestingly, the greenback may extend gains versus the yen, as long as Treasury yields rise at a measured price. However, it is likely to fall against currencies of major commodities exporters as more signs point to a rebound in global growth. 

People should keep in mind that, comments that Powell is monitoring events in the Treasury market might be enough to improve the situation. 

Dollar and other important currencies

Interestingly, the dollar rose to 107.36 yen, its best result since July last year.

Moreover, the U.S. currency bought 0.92540 Swiss franc. Its highest point against the safe-haven currency since September 28. 

It is not desirable to chase Swiss franc weakness against the U.S. currency and euro at current levels. Moreover, there is a potential for a short squeeze. 

Importantly, current levels on EUR/CHF are attractive for tactical shorts. However, an acceleration higher in U.S. yields remains a risk. 

It is worth mentioning that, the British pound steadied at $1.3942. The euro traded at $1.2043, down 0.15% on the day. 

Interestingly, the benchmark 10-year Treasury yield backed down to 1.4533%, after rising earlier to 1.4567%.

Let’s have a look at the Australian dollar. It recovered from early losses and rose to $0.7776, up 0.1% on the day. 

However, the New Zealand dollar, another closely watched commodity currency, fell 0.1% to $0.7239. 

The Aussie, as well as the kiwi, are likely to continue rising as both economies are rebounding from the COVID-19 pandemic. Moreover, they will both benefit from an acceleration in global trade. 

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