The dollar edged higher to a 14-year high during the course of Tuesday’s session, as comments from the Federal Reserve Chair Janet Yellen have fueled a faster pace of rate hikes next year than had been expected.
Given a rally in the U.S. Treasury yields along with Yellen’s speech on Monday that the U.S. labour sector remained at its most robust in more than a decade, the dollar strengthened against a basket of major rivals in a light trading.
"It's a bit yield-driven, but flows are extremely light," said Ian Gordon, G10 currency strategist at Bank of America Merrill Lynch in New York. The dollar index, which measures the dollar’s strength against a basket of currencies rose by over 0.1 percent at 103.31 after settling at 103.65, marking its highest level since December 2002.
The benchmark 10-year Treasury yield rallied by about 2 basis points at 2.562 percent. The greenback edged higher and bond market sell-off since the Nov. 8 U.S. election has been driven by bets that U.S. President-elect Donald Trump’s administration would trim down taxes and increase fiscal spending, which will send U.S. growth and inflation higher.
Dollar Lower Against Major Crosses
The dollar posted lower against the yen and the euro in an Asian trading on Wednesday, with market participants taking profits on recent gains in the U.S. currency. Meanwhile, the U.S. currency traded at ¥117.67, compared with ¥117.88 in late trading in Tuesday.
The dollar index, which gauges the dollar’s strength against a basket of major currencies, declined by about 0.11 at 93.26. However, the euro climbed to $1.0408 from $1.0388 on Tuesday after posting fresh multi-year low of $1.0352, marking its lowest level since January 2003. Subsequently, investors have taken their profits after scooping up the U.S. dollar against the yen on Tuesday after an announcement from the Bank of Japan Gov. Haruhiko Kuroda.
Ahead of the BOJ’s decision to hold monetary policy unchanged, Kuroda said on Tuesday that the yen hadn’t weakened to a level that should surprise investors, citing the currency dropped as the dollar rallied against a broad range of currencies.
US Travelers Benefit From Strong Dollar
During the holiday season in 2013, hotel rooms in Paris were priced at 150 euros and would cost US travelers about $205. However, given a strong dollar, similar hotel rooms would cost Americans only about $160 this holiday season.
Evidently, Americans traveling overseas currently gains more bucks when it comes to the spending power of the dollar against currencies like the British pound and the euro.
Current Stance Of USD/JPY Pair
The chart below illustrates USD/JPY price movement amid Bank of Japan’s decision to leave monetary policy unchanged. Given a bearish tone of the pair, market participants have begun selling riskier currencies, as it is widely expected that the BOJ’s decision, along with the Fed Chair Janet Yellen’s comments would bring an impact on the currencies. Further, the pair tried to break out on the upside at resistance 117.597 in a light trading volume.
Conclusion
As the illustrative chart above shows a bearish tone of the pair, market participants are recommended to still wait on the sidelines as there aren’t any supporting candle present as of writing.