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King Dollar Ends Win Streak as Countdown to 'Wildcard' Fed Meeting Begins

ForexMar 12, 2021 04:26PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com – The dollar rose Friday, but remains set to snap a two-week winning streak as investors turned attention to the Federal Reserve’s monetary policy meeting due next week that could prove to be a "wildcard" for U.S. bonds yields, which have been driving up the greenback.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, rose by 0.26% to 91.66, driven by a move higher in U.S. rates as investors bet on stimulus-led recovery.

The backdrop of liquidity from President Joe Biden's $1.9 trillion stimulus package, the ongoing positive economic data, and the greater supply of bonds – to fund the government spending – will likely continue to support rates in the near term, but the Federal Reserve remains a key wildcard, Jefferies (NYSE:JEF) said in a note.

"[W]e do expect the rate move to continue in the very near term. The Fed as ever remains a key wildcard," Jefferies added. "So we do think folks need to watch the price action quite closely here going into next week’s Fed meeting," it added.

The Fed will provide a fresh update on its economic outlook that will likely reflect the faster pace of growth and the transitory inflation pressures, but with the labor market still below pre-pandemic levels, the central bank will stick with its projection on rates to remain near zero through 2023.

The increasing scrutiny over price action in the bond market comes in the wake of a rapid move higher in bond yields, which trade inversely to price, and is more often a boon for the dollar. There are fears the move could signal inflation is at risk of the spiraling of control. Still, the level of concern appears overdone somewhat as real yields are only two basis points.

The press conference that follows the Fed decision was be closely watched after Fed Chairman Jerome Powell at a recent virtual event -- hosted by the Wall Street Journal -- said the move in rates has caught his attention, but he downplayed the risk of the runaway inflation.  

"Bonds sold off after Powell’s WSJ Q&A, pressuring risk assets and lifting the dollar. If the Fed Chair can present a dovish narrative in such a way that US Treasuries avoid a disorderly sell-off, then those currencies exposed to the global business cycle – including the EUR – can probably enjoy some modest gains later in the week," ING said in a note.

King Dollar Ends Win Streak as Countdown to 'Wildcard' Fed Meeting Begins
 

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Comments (9)
Abbas Khan
Abbas Khan Mar 13, 2021 4:18PM ET
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any body help me pl what expectations USD go up and up
American Truth
American Truth Mar 13, 2021 3:45PM ET
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Transitory, that's the same term yellin kept spouting off for years..One trick pony Fed.
Viking Fire
Viking Fire Mar 13, 2021 3:15AM ET
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Dollar is king because america is the greatest country on earth.
Samson Gold
Samson Gold Mar 12, 2021 8:16PM ET
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which king dollar are you talking about
Alfa Luso
AlfaLuso Mar 12, 2021 6:47PM ET
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Which King Dollar are you talking about?It's been under 100 for almost a year... if at 91 is King what are the other currencies? Emperors?
Viking Fire
Viking Fire Mar 12, 2021 6:47PM ET
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They need to start requiring government ids on websites...100% yours says “china”
Brian Springer
Brian Springer Mar 12, 2021 5:58PM ET
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whipsawed all over last 2 days
Me comment
Me comment Mar 12, 2021 5:30PM ET
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The FED is not going to raise interest rates or slow bind purchases for at least another 6-12 months. The economy or job market are no where near close to recovering enough to warrant any change in policy. The speculative hype by the analysts is only so they can line their pockets on the market panic. The raw numbers don't support the interest yield rates right now.
AIM Investor Journal
AIM Investor Journal Mar 12, 2021 5:30PM ET
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Exactly this!
Tyler Phillis
Tyler Phillis Mar 12, 2021 5:30PM ET
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Agreed. What people dont realize is that the US economy lost about 1/3rd of its GDP last year. Thats huge!
Jim Jones
Jim Jones Mar 12, 2021 5:15PM ET
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So 70 billion a month in Treasury purchases still to keep the free money flowing... all that matters.
Farzad Karimi
Farzad Karimi Mar 12, 2021 4:54PM ET
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