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Dollar Higher, Yen Under Pressure as U.S. Yields Rise

ForexSep 28, 2021 02:58AM ET
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© Reuters.

By Peter Nurse

Investing.com - The dollar edged higher in early European trade Tuesday, boosted by rising U.S. Treasury yields as traders position for the Federal Reserve tapering its bond-buying program this year after last week’s policy-setting meeting. 

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 93.472, just under a one-month high.

USD/JPY rose 0.3% to 111.29, climbing to levels not seen since early July, GBP/USD traded largely flat at 1.3696, while the risk sensitive AUD/USD rose 0.1% to 0.7295. Data released earlier in the day showed that Australian retail sales contracted 1.7% month-on-month in August, hit by Covid-19 restrictions, but better than the 2.5% fall expected.

EUR/USD fell 0.1% to 1.1686, with traders having to balance the uncertainty surrounding Germany’s political climate following Sunday’s general election and an unexpected rise in German consumer confidence.

The GfK consumer sentiment index rose to 0.3 points in October, its highest level in a year and a half, a survey showed on Tuesday, from a revised -1.1 points a month earlier. 

However, the major driving force behind the recent moves in the foreign exchange markets has been the rise in U.S. Treasury yields, where the  benchmark 10-year briefly topped 1.5% on Monday, a level not seen since June 2021, and the two-year yield rose to its highest since March 2020. 

This follows the Federal Reserve indicating at its policy-setting meeting last week that it could begin asset tapering as soon as November, concluding around mid-2022, opening the way for interest rate hikes after that.

“Unless the nonfarm payrolls report for September falls off a cliff, the November taper decision seems carved in stone,” said analysts at Nordea, in a note, adding “a $40 billion-a-quarter tapering process commencing in November (with initial focus on MBS purchases) and a first lift-off in the late autumn of 2022 seems likely to bet on for now.”

Federal Reserve Chairman Jerome Powell is set to testify later Tuesday in front of the Senate Banking Committee, and is expected to highlight "upside risks" to inflation as bottlenecks, hiring difficulties, and other drivers of price pressures continue, but will continue to suggest these pressures will prove transitory, according to prepared remarks. 

Powell's appearance comes a day after two regional Fed presidents resigned, less than a week after revelations that they had actively traded stocks and other financial instruments while sitting on the Fed's policy-making committee. 

U.S. data later in the session includes consumer confidence for September, as well the S&P/Case-Shiller House Price Index.

 

 

Dollar Higher, Yen Under Pressure as U.S. Yields Rise
 

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Comments (7)
Salvador Hernández Sánchez
Salvador Hernández Sánchez Sep 28, 2021 8:33AM ET
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Dolarr must be bearish not smother currencies, the crisis is mundial and reserve of usd is affected
stefan mihalea
stefan mihalea Sep 28, 2021 6:06AM ET
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usd powerful? NO! Crises? YES ! Where it's the higher crise? Who is the most stable?  Who invested / investing best the money tipped ?
Mr Panha
Mr Panha Sep 28, 2021 5:58AM ET
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hello
Sol Wein
Sol Wein Sep 28, 2021 5:48AM ET
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One way to look at it is traders are front running the fed. What did powell think was going to happen?
Kelechi Jude
Kelechi Jude Sep 28, 2021 5:42AM ET
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Kelechi Jude
Shabani Salumu
Shabani Salumu Sep 28, 2021 5:12AM ET
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shabani
Kevin Avila
Kevin Avila Sep 28, 2021 4:51AM ET
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Japan owns the most bonds in the world… but okay.
 
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