U.S. Dollar Rises as Caution Reigns Ahead of Key Central Bank Meetings

By Gertrude Chavez-Dreyfuss

The Federal Reserve, Bank of England, and Bank of Japan are all set to meet this week and will likely set the tone as to where global rates are headed.

U.S. Treasury yields, however, were lower on Monday in line with Europe, ahead of these central bank gatherings. Benchmark 10-year Treasury yields traded as high at 1.639% on Monday, close to Friday’s top of 1.6420%, a level last seen in February 2020.

Gains in the greenback were more pronounced against low-yielding currencies such as the euro and the British pound while high-yielding currencies like the Australian dollar fared relatively better.

“The U.S. dollar has been one of the best-performing G10 currencies in recent weeks reflecting a shift in expectations regarding Fed interest rate policy,” said Jane Foley, senior FX strategist, at Rabobank in a research note.

“Since the reflation trade is centered around U.S. fiscal policy and growth expectations, the U.S. dollar could prove to be more resilient than the consensus had been expecting at the start of the year.”

Rising U.S. yields have lifted the greenback 2% so far this year thanks to widening interest rate differentials relative to other major bond markets. The dollar declined more than 4% in the last quarter of 2020.

In mid-morning trading, the dollar index, which tracks the U.S. currency against six major peers, was up 0.2% at 91.68 . It hit a late November 2020 high of 92.51 last week.

The U.S. currency has been supported by declining bets for its decline, with speculators cutting net short positions to the lowest since mid-November in the week ended March 9.

Rising bond yields will continue to focus minds this week before a Fed meeting at which some analysts expect policymakers to strike an optimistic tone on the U.S. economy.

While there are some expectations that the Fed might try to calm bond markets – yields have risen some 60 basis points since the last Fed meeting – the consensus view is Fed Chief Jerome Powell will not make changes to policy.

“The Fed is not expected to tinker with its monetary policy but instead communicate via forecasts that the situation is under control and that markets are running way ahead of themselves,” SEB analysts said in a note.

The greenback rose 0.2% against the yen to 109.19, after earlier climbing to 109.36 yen, the highest since June 2020.

The euro weakened 0.3% to $1.1920 after rising last week for the first time in three weeks as latest data showed hedge funds slashed their net euro positions.

The Australian dollar – viewed widely as a liquid proxy for risk appetite – fell 0.4% to US$0.7725, extending Friday’s Loss.

Bitcoin, meanwhile, weakened 3.3% after surging to a record high of $61,781.83 over the weekend.

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Currency bid prices at 10:29AM (1429 GMT)

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

Previous Change

Session

Dollar index 91.8610 91.6800 +0.21% 2.089% +91.8900 +91.5370

Euro/Dollar $1.1921 $1.1953 -0.27% -2.43% +$1.1968 +$1.1917

Dollar/Yen 109.2150 109.0200 +0.19% +5.75% +109.3550 +108.9300

Euro/Yen 130.19 130.29 -0.08% +2.58% +130.4800 +130.0400

Dollar/Swiss 0.9293 0.9296 -0.02% +5.06% +0.9312 +0.9278

Sterling/Dollar $1.3896 $1.3970 -0.52% +1.72% +$1.3948 +$1.3895

Dollar/Canadian 1.2485 1.2475 +0.08% -1.96% +1.2500 +1.2442

Aussie/Dollar $0.7730 $0.7758 -0.35% +0.49% +$0.7775 +$0.7722

Euro/Swiss 1.1077 1.1107 -0.27% +2.50% +1.1108 +1.1071

Euro/Sterling 0.8575 0.8588 -0.15% -4.05% +0.8589 +0.8555

NZ $0.7184 $0.7177 +0.10% +0.04% +$0.7216 +$0.7180

Dollar/Dollar

Dollar/Norway 8.4730 8.4395 +0.39% -1.33% +8.4840 +8.4140

Euro/Norway 10.1042 10.0750 +0.29% -3.47% +10.1150 +10.0431

Dollar/Sweden 8.5330 8.4783 +0.37% +4.11% +8.5474 +8.4691

Euro/Sweden 10.1717 10.1338 +0.37% +0.95% +10.1912 +10.1339

 

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee in London; Editing by Catherine Evans, Alexander Smith and Andrea Ricci)