Dollar drops to three-week lows on subdued Treasury yields

Published On: April 15, 2021Categories: Trading1.9 min read

The dollar has gained this year as Treasury yields rose on expectations of faster growth and higher inflation

The dollar dropped to three-week lows on Wednesday as Treasury yields held below recent highs, reducing the relative attractiveness of the U.S. currency.

The dollar has gained this year as Treasury yields rose on expectations of faster growth and higher inflation. That trade has paused this month, however, with yields stabilizing below one-year highs reached last month.

The whole pro dollar trade is based upon the yield story and given the fact that the yield story has backed off the highs, the dollar has pretty much done the same thing, said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

Until the bond market gets the heebie-jeebies over the inflation fears again, I think the long dollar position remains under assault, he said.

Treasury yields inched up on Wednesday but remained lower on the week.

The dollar index dropped to as low as 91.57, the lowest since March 18, and was last at 91.68, down 0.11% on the day.

The euro advanced 0.21% to $1.1971. The greenback dropped 0.13% to 108.92 Japanese yen.

The relative stability of yields this week has seen profit taking weigh down the Greenback, Ronald Simpson, Managing Director, Global Currency Analysis for Action Economics said in a report.

Data on Tuesday showed that U.S. consumer prices rose by the most in more than 8-1/2 years in March, but it wasn’t enough to change expectations that the Federal Reserve will hold rates near zero for years to come.

Fed Chair Jerome Powell said Wednesday that the U.S. central bank will reduce its monthly bond purchases before it commits to an interest rate increase, clarifying the order of monetary policy changes that are still months if not years in the future.

Dallas Fed President Robert Kaplan also said that it will be “a while” before the United States reaches full employment, even as he repeated his view that the Fed should begin to withdraw support from the economy sooner than most of his colleagues do.

The U.S. economic recovery accelerated to a moderate pace from late February to early April, the Federal Reserve reported on Wednesday in its latest “Beige Book.”

The next major U.S. economic release will be retail sales for March on Thursday.

The New Zealand dollar advanced to a three-week high of $0.71220 after the country’s central bank held its official interest rate and asset purchase program steady, as expected.

About the Author: Jonathan Adams

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