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U.S. Dollar Soars As Surging Yields Attract Massive Demand

Published 02/25/2021, 05:59 PM
Updated 07/09/2023, 06:31 AM
  • U.S. Dollar Soars As 10-Year Yields Rise 10%
  • Stocks Collapse, Driving Risk Currencies Lower
  • AUD Hit Hardest By Risk Aversion
  • Euro Most Resilient
  • U.S. Personal Income, Spending Numbers Next
 
The U.S. dollar is reaping the benefits of rising yields. Since the beginning of the year we’ve seen 10-year bond yields in the U.S. move from 0.91% to a one-year high of 1.56%. This trend started at the turn of the new year but gained significant momentum in the past few weeks. At first, currency and equity traders resisted the move, with stocks powering to record highs and the U.S. dollar continuing its slide, but today, investors are finally waking up to the ramifications of rising interest rates. U.S. policy-makers say they aren’t concerned, but the spike in yields has a direct impact on consumer rates. Mortgage rates, for example, rose to their highest level since August, which could put an end to the refinancing boom.
 
Yields are rising because investors are optimistic. They believe a strong sustainable recovery is right around the corner and prices will rise as demand comes roaring back. In this type of environment, bond yields should be higher regardless of whether the Fed raises interest rates. Currencies are particularly sensitive to interest rates, which explains why the U.S. dollar had such a significant reaction to the 10% spike. The same is true for stocks. Rising yields increase borrowing costs and affect the discretionary incomes of consumers. A 1% to 1.5% increase is big on a percentage basis, but on an absolute basis, it is still very low. It took some time for the U.S. dollar and stocks to respond, but we could see a multi-day rise in the greenback and corresponding slide in equities.
 
The U.S. is not the only country experiencing rising yields. Ten-year German bund yields also climbed to their highest level in 11 months. In contrast to the Federal Reserve, European Central Bank officials say they are closely monitoring the evolution of long-term nominal bond yields. They will ensure that they remain favorable, according to ECB member François Villeroy. With the ECB more eager to act on rising rates than the Fed, EUR/USD should be trading lower. Unlike other major currencies that fell sharply today, EUR/USD was unchanged, but it should only be a matter of time before the pair turns lower as well.
 
The Australian dollar was hit the hardest by the rising U.S. dollar, which is not unusual because the currency is especially sensitive to the performance of stocks. Whenever there is a big market sell-off, we typically see AUD/USD and AUD/JPY sell-off. The New Zealand dollar also sold off aggressively, but NZD’s decline was supported by a downwardly revised consumer confidence report. USD/CAD enjoyed its strongest one day rise since Jan. 27. A move like this should be followed by continuation but the rise in oil prices holds the pair back.
 
The second worse performing currency was sterling, which dropped reversed towards 1.40. Given how much GBP/USD has risen this month, profit-taking has long been expected. GBP/USD is a trending currency, so after the biggest one-day drop since October, a further decline is likely.

Latest comments

hi how are you kathy
In her last article, it was assumed that USD is expected to decline.
Massive demand? How sid the bond auctions go this week?
it's very professional. can you provide a sure win counter?
"Yields are rising because investors are optimistic." NO, yields are rising this time because investors are losing confidence in bonds, therefore selling them at lower price. Have you ever considered that?
Selling their bonds to do what with? Put into the stock market, commodities? its kind of the same, right? investors are optimistic, so they take their money out of lower yielding bonds in comparison.
Selling their bonds to do what with? Put into the stock market, commodities? its kind of the same, right? investors are optimistic, so they take their money out of lower yielding bonds in comparison.
the bond investor will move their investment to shorter maturity bond , which has lower sensitivity to rate increase
You think the House will delay the stimulus bill passing to save.the burning down !
Wow Kathy...you're back. It seems you only show up when the dollar is strong. Are you a perma bull for our constantly debased currency....sure appears that way?
simple and fluent, thank you
more stimulus coming and usd is up? why? how.leveraged are these funds with equities?
Thanks kay!
Very informative, thanks
Back to business. Thanks Kathy. FYI Kathy does not often make predictions but when she does they usually come true. Take note
ok maybe i sure
Always professional. Your articles are very appreciated
The truth lay at 88 all else is false!
Dollar soars, in microscopic yesLet us see next week for dollar
Thanks
Excellent
"Yields are rising because investors are optimistic. They believe a strong sustainable recovery is right around the corner and prices will rise as demand comes roaring back." I believe the same thing, that's why I've been buying my favorite ETFs with both hands this week. We're finally starting to see a light at the end of the tunnel in regard to Covid-19, and this time that light is not attached to a train. There is going to be a lot of money made in the right equities this year. My oil and gas ETFs are smoking (pun intended).
are this moment (Dollar Surge) will continues today ? or its just a one night Moment
I do agree that Covid, a manufactured crisis, is going away. But the country is a mess, the dollar will not rebound with more stimulus coming. Commodities going up is an indication of that, and gold is the slowest horse in the race.
 It's not a case of USD going up. More like every other currency going down, so USD has nowhere else to go but up. USD was weak, but now everything else is even weaker, so USD must go up by default.
Thanks!!!!
I'm not sure i understand what your definitively of a showing dollar is. To me that was just a reversal of earlier losses.
*definition* *slowing*
Why is gold inching up at the same time the dollar rises? What does that mean?
Risk avoidance - looking for safe haven
hahahaahha
soaring dollar!!! hahaha come on that's a joke and short lived
you think? soaring dolar just Short term?
Thank you, always useful your material Kathy.
the economy is not coming back
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