Dollar Picks Up Support from Steep Rise in U.S. Treasury Yields

The U.S. Dollar hovered above a three-year low hit last week against a basket of major currencies on Monday, picking up support from a steep rise in U.S. Treasury yields.

The move in the yields likely spooked weak short-sellers into covering their positions. Additionally, short-sellers may have also pared positions ahead of President Trump’s first State of the Union address scheduled for late Tuesday and Wednesday’s release of the U.S. Federal Reserve Monetary Policy Statement.

March U.S. Dollar Index futures settled at 89.131, up 0.240 or +0.27%.

U.S. Treasury Markets

On Monday, the benchmark U.S. 10-year Treasury yield reached a peak of 2.727 percent, the highest since April 2014. The rise in U.S. debt yields might stem from concerns over the possibility of eventual increases in bond issuance. Additionally, investors may also be increasing bets on an accelerating economy and inflation.

U.S. Equity Markets

The major U.S. stock indexes settled lower on Monday after the 10-year U.S. Treasury Note yield spiked higher, raising concerns higher interest rates would put a lid on the bull market. U.S. stocks also posted the biggest drop of the new year.

In the cash market, the benchmark S&P 500 Index settled at 2853.53, down 19.34 or -0.67%. The blue chip Dow Jones Industrial Average closed at 26439.48, down 177.23 or -0.67% and the tech-based NASDAQ Composite Index finished the session at 7470.53, down 35.24 or -0.47%.

Gold

A firmer U.S. Dollar and rising Treasury yields also put pressure on gold prices on Monday. Since gold is a dollar-denominated commodity, demand for the precious metal tends to drop when the dollar rises. This is because it becomes more expensive for foreign buyers.

Additionally, gold does not pay interest so when rates rise, investors sell gold then move the proceeds into interest-bearing instruments.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures tumbled on Monday as a strengthening U.S. Dollar lead to a drop in demand for the dollar-denominated commodity. Sellers also expressed concerns over rising U.S. output.

Natural Gas

Natural gas futures retreated on Monday after finishing last week with a strong rally. The price action may have been muted with the expiration of the February futures contract looming. An overbought market and uncertainty over the 8 to 14 day weather forecast may have also encouraged investors to book profits after last week’s steep rise in prices.