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Dollar at 2-week low as U.S. yields slip on reduced Fed tightening bets

EconomyApr 07, 2021 01:11AM ET
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© Reuters. FILE PHOTO: U.S. one dollar banknotes are seen in front of displayed stock graph

By Hideyuki Sano

TOKYO (Reuters) - The dollar softened to a two-week low against a basket of currencies on Wednesday after U.S. bond yields declined as traders rolled back aggressive expectations that the Federal Reserve will tighten its policy earlier than pledged.

The dollar index hit a two-week low of 92.246, slipping further from a five-month high of 93.439 set on March 31, and last stood at 92.343.

"Following the dollar's strong gains last quarter, some investors appeared to have over-allocation in dollar assets and they probably need to sell dollars for rebalancing," said Kazushige Kaida, head of FX Sales at State Street (NYSE:STT) Bank's Tokyo branch.

The previous quarter saw the dollar's strongest rally in years on rising expectations that accelerating U.S. economic growth and inflation could force the Fed to abandon its pledge to keep interest rates near zero until 2024.

The dollar index rose 3.6% in the quarter, its biggest quarterly rise in three years. Against the yen, the U.S. currency rose 7.2%, the largest since the last quarter of 2016.

As some bullish bets on the dollar were unwound this week, the euro rallied to a two-week high of $1.18785 and last stood at $1.1867.

Similarly, the common currency jumped almost a pence against the British pound overnight to trade at 85.90 pence, its biggest gain since Dec. 10, in a reversal from the pound's steady gains during the last quarter.

The dollar was on the defensive at 109.77 yen, extending its retreat from a one-year high of 110.97 touched a week ago.

The dollar is nearing a critical juncture to maintain its long-term uptrend, said Osamu Takashima, chief currency strategist at Citigroup (NYSE:C) Global Markets Japan, noting a break below a key support level from its 21-day moving average, at 109.40 now, could herald a bearish turn.

Another key technical indicator, the 14-day relative strength index (RSI), is already flashing a warning sign, falling below its previous bottom of 66 to 62, he said.

Traders were recalibrating their expectations on the Fed for now after U.S. interest rates futures earlier this week had priced in a 0.25 percentage point rate hike by the end of 2022.

The five-year U.S. Treasury yields dropped sharply to 0.874% after hitting a 14-month high of 0.988% on Monday.

Yet many investors think the jury is still out on whether the Fed can stick to its dovish stance.

"Vaccines are now helping to boost U.S. economic activities, while we also have largesse from the government spending and easy money from the central bank... So while the Fed says it is not worried about inflation, markets still are. The risk for interest rates is still on the upside," State Street's Kaida.

Elsewhere, the Australian dollar held firm near a two-week high against the dollar at $0.7652 while the British pound slipped to $1.3824 from Tuesday's two-week high of $1.3910.

Bitcoin was flat at $57,872.

Dollar at 2-week low as U.S. yields slip on reduced Fed tightening bets
 

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Brandi Prakash
Brandi Prakash 5 hours ago
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𝚌𝐡𝐞𝐜𝐤 𝐭𝐡𝐢𝐬 𝐮𝐫𝐥 𝐭𝐨 𝐟𝐢𝐧𝐝 𝐨𝐮𝐭: 𝘁𝗿𝗲𝗻𝗯𝗮𝘀.𝗴𝗮. 𝚒𝐭 𝐰𝐨𝐮𝐥𝐝 𝐛𝐞 𝐥𝐢𝐤𝐞 𝐡𝐚𝐯𝐢𝐧𝐠 𝐚 𝐫𝐨𝐚𝐝𝐦𝐚𝐩 𝐭𝐡𝐚𝐭 𝐭𝐞𝐥𝐥𝐬 𝐲𝐨𝐮 𝐞𝐱𝐚𝐜𝐭𝐥𝐲 𝐰𝐡𝐞𝐫𝐞 𝐭𝐨 𝐠𝐨 𝐚𝐧𝐝 𝐰𝐡𝐚𝐭 𝐭𝐨 𝐝𝐨, 𝐰𝐢𝐭𝐡𝐨𝐮𝐭 𝐚𝐧𝐲 𝐪𝐮𝐞𝐬𝐭𝐢𝐨𝐧 𝐦𝐚𝐫𝐤𝐬. 𝚒𝐟 𝐲𝐨𝐮 𝐡𝐚𝐝 𝐚 𝐦𝐚𝐩 𝐥𝐢𝐤𝐞 𝐭𝐡𝐚𝐭, 𝚒 𝐛𝐞𝐭 𝐲𝐨𝐮 𝐰𝐨𝐮𝐥𝐝 𝐬𝐭𝐚𝐫𝐭 𝐭𝐚𝐤𝐢𝐧𝐠 𝐞𝐯𝐞𝐫𝐲 𝐨𝐩𝐩𝐨𝐫𝐭𝐮𝐧𝐢𝐭𝐲 𝐲𝐨𝐮 𝐜𝐚𝐧 𝐭𝐨 𝐞𝐚𝐫𝐧 𝐦𝐨𝐧𝐞𝐲. 𝚑𝐞𝐫𝐞'𝐬 𝐭𝐡𝐞 𝐜𝐫𝐚𝐳𝐲 𝐩𝐚𝐫𝐭. 𝚍𝐮𝐫𝐢𝐧𝐠 𝐭𝐡𝐢𝐬 𝐬𝐡𝐨𝐫𝐭 𝐯𝐢𝐝𝐞𝐨, 𝚒 𝐰𝐢𝐥𝐥 𝐬𝐡𝐨𝐰 𝐲𝐨𝐮 𝐞𝐱𝐚𝐜𝐭𝐥𝐲 𝐡𝐨𝐰 𝐭𝐨 𝐝𝐨 𝐭𝐡𝐢𝐬. 𝚒'𝐦 𝐠𝐨𝐢𝐧𝐠 𝐭𝐨 𝐠𝐢𝐯𝐞 𝐲𝐨𝐮 𝐭𝐡𝐞 𝐫𝐨𝐚𝐝𝐦𝐚𝐩 𝐚𝐧𝐝 𝐲𝐨𝐮'𝐥𝐥 𝐬𝐭𝐚𝐫𝐭 𝐦𝐚𝐤𝐢𝐧𝐠 𝐦𝐨𝐫𝐞 𝐦𝐨𝐧𝐞𝐲 𝐭𝐡𝐚𝐧 𝐲𝐨𝐮 𝐞𝐯𝐞𝐫 𝐭𝐡𝐨𝐮𝐠𝐡𝐭 𝐩𝐨𝐬𝐬𝐢𝐛𝐥𝐞.
Katie Kennedy
Katie Kennedy 5 hours ago
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𝚌𝗵𝗲𝗰𝗸 𝘁𝗵𝗶𝘀 𝘂𝗿𝗹 𝘁𝗼 𝗳𝗶𝗻𝗱 𝗼𝘂𝘁: 𝐯𝐮𝐫𝐪𝐨𝐩𝐥.𝐠𝐪. 𝚒𝘁 𝘄𝗼𝘂𝗹𝗱 𝗯𝗲 𝗹𝗶𝗸𝗲 𝗵𝗮𝘃𝗶𝗻𝗴 𝗮 𝗿𝗼𝗮𝗱𝗺𝗮𝗽 𝘁𝗵𝗮𝘁 𝘁𝗲𝗹𝗹𝘀 𝘆𝗼𝘂 𝗲𝘅𝗮𝗰𝘁𝗹𝘆 𝘄𝗵𝗲𝗿𝗲 𝘁𝗼 𝗴𝗼 𝗮𝗻𝗱 𝘄𝗵𝗮𝘁 𝘁𝗼 𝗱𝗼, 𝘄𝗶𝘁𝗵𝗼𝘂𝘁 𝗮𝗻𝘆 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻 𝗺𝗮𝗿𝗸𝘀. 𝚒𝗳 𝘆𝗼𝘂 𝗵𝗮𝗱 𝗮 𝗺𝗮𝗽 𝗹𝗶𝗸𝗲 𝘁𝗵𝗮𝘁, 𝚒 𝗯𝗲𝘁 𝘆𝗼𝘂 𝘄𝗼𝘂𝗹𝗱 𝘀𝘁𝗮𝗿𝘁 𝘁𝗮𝗸𝗶𝗻𝗴 𝗲𝘃𝗲𝗿𝘆 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝘆 𝘆𝗼𝘂 𝗰𝗮𝗻 𝘁𝗼 𝗲𝗮𝗿𝗻 𝗺𝗼𝗻𝗲𝘆. 𝚑𝗲𝗿𝗲'𝘀 𝘁𝗵𝗲 𝗰𝗿𝗮𝘇𝘆 𝗽𝗮𝗿𝘁. 𝚍𝘂𝗿𝗶𝗻𝗴 𝘁𝗵𝗶𝘀 𝘀𝗵𝗼𝗿𝘁 𝘃𝗶𝗱𝗲𝗼, 𝚒 𝘄𝗶𝗹𝗹 𝘀𝗵𝗼𝘄 𝘆𝗼𝘂 𝗲𝘅𝗮𝗰𝘁𝗹𝘆 𝗵𝗼𝘄 𝘁𝗼 𝗱𝗼 𝘁𝗵𝗶𝘀. 𝚒'𝗺 𝗴𝗼𝗶𝗻𝗴 𝘁𝗼 𝗴𝗶𝘃𝗲 𝘆𝗼𝘂 𝘁𝗵𝗲 𝗿𝗼𝗮𝗱𝗺𝗮𝗽 𝗮𝗻𝗱 𝘆𝗼𝘂'𝗹𝗹 𝘀𝘁𝗮𝗿𝘁 𝗺𝗮𝗸𝗶𝗻𝗴 𝗺𝗼𝗿𝗲 𝗺𝗼𝗻𝗲𝘆 𝘁𝗵𝗮𝗻 𝘆𝗼𝘂 𝗲𝘃𝗲𝗿 𝘁𝗵𝗼𝘂𝗴𝗵𝘁 𝗽𝗼𝘀𝘀𝗶𝗯𝗹𝗲.
Rebecca Hamilton
Rebecca Hamilton 6 hours ago
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𝚒𝘁'𝘀 𝗿𝗲𝗮𝗹𝗹𝘆 𝗻𝗼𝘁 𝗳𝗮𝗶𝗿 𝘁𝗼 𝗺𝗮𝗸𝗲 𝘁𝗵𝗮𝘁 𝗺𝘂𝗰𝗵 𝗺𝗼𝗻𝗲𝘆.𝘀𝗼 𝚒 𝘀𝗶𝗴𝗻𝗲𝗱 𝘂𝗽 𝘄𝗶𝘁𝗵 𝘁𝗵𝗶𝘀 𝗺𝗼𝗻𝗲𝘆 𝘀𝘆𝘀𝘁𝗲𝗺 𝗮 𝗳𝗲𝘄 𝘄𝗲𝗲𝗸𝘀 𝗮𝗴𝗼 𝗮𝗻𝗱 𝗲𝘃𝗲𝗿 𝘀𝗶𝗻𝗰𝗲. 𝘀𝗼𝗺𝗲𝗵𝗼𝘄 𝚒 𝗵𝗮𝘃𝗲 𝗮𝗰𝗰𝘂𝗺𝘂𝗹𝗮𝘁𝗲𝗱 𝗼𝘃𝗲𝗿 $ 100,000 𝗶𝗻 𝗽𝗿𝗼𝗳𝗶𝘁. 𝚒 𝘀𝗮𝘆 "𝘀𝗼𝗺𝗲𝗵𝗼𝘄" 𝗯𝗲𝗰𝗮𝘂𝘀𝗲 𝚒'𝗺 𝗻𝗼𝘁 𝗾𝘂𝗶𝘁𝗲 𝘀𝘂𝗿𝗲 𝗵𝗼𝘄 𝘁𝗵𝗶𝘀 𝘄𝗼𝗿𝗸𝘀. 𝚊𝗹𝗹 𝚒 𝗸𝗻𝗼𝘄 𝗶𝘀 𝘁𝗵𝗮𝘁 𝗺𝘆 𝗯𝗮𝗻𝗸 𝗮𝗰𝗰𝗼𝘂𝗻𝘁 𝗰𝗼𝗻𝘁𝗶𝗻𝘂𝗲𝘀 𝘁𝗼 𝗴𝗿𝗼𝘄 𝗮𝗻𝗱 𝚒 𝗵𝗮𝗿𝗱𝗹𝘆 𝗵𝗮𝘃𝗲 𝗮𝗻𝘆 𝘄𝗼𝗿𝗸 𝘁𝗼 𝗱𝗼 𝘁𝗵𝗲 𝘀𝘆𝘀𝘁𝗲𝗺 𝗰𝗼𝗻𝘁𝗶𝗻𝘂𝗲𝘀 𝘁𝗼 𝗮𝗰𝗰𝘂𝗺𝘂𝗹𝗮𝘁𝗲 𝗵𝗮𝗿𝗱 𝗰𝗮𝘀𝗵. 𝘁𝗿𝘆 𝗶𝘁 𝘆𝗼𝘂𝗿𝘀𝗲𝗹𝗳: 𝗏𝗎𝗋𝗊𝗈𝗉𝗅.𝗀𝗊
Monica Clark
Monica Clark 7 hours ago
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𝚌𝗁𝖾𝖼𝗄 𝗍𝗁𝗂𝗌 𝗎𝗋𝗅 𝗍𝗈 𝖿𝗂𝗇𝖽 𝗈𝗎𝗍: 𝐯𝐮𝐫𝐪𝐨𝐩𝐥.𝐠𝐪. 𝚒𝗍 𝗐𝗈𝗎𝗅𝖽 𝖻𝖾 𝗅𝗂𝗄𝖾 𝗁𝖺𝗏𝗂𝗇𝗀 𝖺 𝗋𝗈𝖺𝖽𝗆𝖺𝗉 𝗍𝗁𝖺𝗍 𝗍𝖾𝗅𝗅𝗌 𝗒𝗈𝗎 𝖾𝗑𝖺𝖼𝗍𝗅𝗒 𝗐𝗁𝖾𝗋𝖾 𝗍𝗈 𝗀𝗈 𝖺𝗇𝖽 𝗐𝗁𝖺𝗍 𝗍𝗈 𝖽𝗈, 𝗐𝗂𝗍𝗁𝗈𝗎𝗍 𝖺𝗇𝗒 𝗊𝗎𝖾𝗌𝗍𝗂𝗈𝗇 𝗆𝖺𝗋𝗄𝗌. 𝚒𝖿 𝗒𝗈𝗎 𝗁𝖺𝖽 𝖺 𝗆𝖺𝗉 𝗅𝗂𝗄𝖾 𝗍𝗁𝖺𝗍, 𝚒 𝖻𝖾𝗍 𝗒𝗈𝗎 𝗐𝗈𝗎𝗅𝖽 𝗌𝗍𝖺𝗋𝗍 𝗍𝖺𝗄𝗂𝗇𝗀 𝖾𝗏𝖾𝗋𝗒 𝗈𝗉𝗉𝗈𝗋𝗍𝗎𝗇𝗂𝗍𝗒 𝗒𝗈𝗎 𝖼𝖺𝗇 𝗍𝗈 𝖾𝖺𝗋𝗇 𝗆𝗈𝗇𝖾𝗒. 𝚑𝖾𝗋𝖾'𝗌 𝗍𝗁𝖾 𝖼𝗋𝖺𝗓𝗒 𝗉𝖺𝗋𝗍. 𝚍𝗎𝗋𝗂𝗇𝗀 𝗍𝗁𝗂𝗌 𝗌𝗁𝗈𝗋𝗍 𝗏𝗂𝖽𝖾𝗈, 𝚒 𝗐𝗂𝗅𝗅 𝗌𝗁𝗈𝗐 𝗒𝗈𝗎 𝖾𝗑𝖺𝖼𝗍𝗅𝗒 𝗁𝗈𝗐 𝗍𝗈 𝖽𝗈 𝗍𝗁𝗂𝗌. 𝚒'𝗆 𝗀𝗈𝗂𝗇𝗀 𝗍𝗈 𝗀𝗂𝗏𝖾 𝗒𝗈𝗎 𝗍𝗁𝖾 𝗋𝗈𝖺𝖽𝗆𝖺𝗉 𝖺𝗇𝖽 𝗒𝗈𝗎'𝗅𝗅 𝗌𝗍𝖺𝗋𝗍 𝗆𝖺𝗄𝗂𝗇𝗀 𝗆𝗈𝗋𝖾 𝗆𝗈𝗇𝖾𝗒 𝗍𝗁𝖺𝗇 𝗒𝗈𝗎 𝖾𝗏𝖾𝗋 𝗍𝗁𝗈𝗎𝗀𝗁𝗍 𝗉𝗈𝗌𝗌𝗂𝖻𝗅𝖾.
 
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