Schedule DXY dollar index at intervals of 60 minutes
The US dollar hovered above multi-week lows compared to its major peers on Tuesday. Its weakness stems from lower Treasury yields ahead of the Federal Reserve’s decision this week. The yen has hardly budged since the Bank of Japan kept its policy unchanged.
The dollar, which has moved as a safe haven, has lost traction after global stocks started the week at an all-time high, although a slight pullback in markets on Tuesday helped hold it above recent lows.
Currency trading was mostly sluggish ahead of the two-day Federal Reserve meeting, which wraps up on Wednesday. No policy changes are expected.
However, the market will pay close attention to the comments of Fed Chairman Jerome Powell, who is likely to face questions about whether the improvement in economic conditions justifies the lifting of monetary policy easing.
However, most analysts expect him to say that such talk is premature, which could put downward pressure on Treasury yields and the dollar.
“By keeping nominal and real yields on US Treasuries low, the Fed is robbing the dollar of the advantage it would otherwise have from the superior performance of the US economy,” said Valentin Marinov, head of G10 currency research at Credit Agricole.
“It also allows investors to focus on the negative impact on the dollar, such as President Biden’s tax proposals and US external imbalances, and thereby level the playing field between the dollar and other currencies.”
The dollar index, which tracks the US currency against six peers, rose 0.1% in London morning session to 90.972, after falling to its lowest level since March 3 at 90.679 on Monday.
The dollar gained 0.2% to hit 108.34 yen against another defensive currency, extending its gains from a seven-week low of 107.48 hit on Friday.
The yen has shown a low profile after the Bank of Japan left monetary policy unchanged, as many expected.
“Trading on the idea of reflation has resumed,” said Gavin Friend, strategist at National Australia Bank, in a client podcast.
“Currencies other than the dollar should win anyway.”
The dollar has dropped nearly 3% since late March as US Treasury yields have traded in tight ranges after falling from a 14-month high of 1.7760%, dampening the attractiveness of the currency’s yields.
The estimated yield on the 10-year Treasury bond was around 1.58% on Tuesday, continuing sideways since falling to a monthly low of 1.528% in the middle of this month.
The euro fell 0.1% to $ 1.2069 but remained close to a two-month high of $ 1.2117 hit on Monday.
The commodity-pegged Australian dollar, a barometer of risk appetite, fell 0.3% to $ 0.7781 after rising 0.7% yesterday, bringing it nearly to a five-week high.
The offshore Chinese yuan fell 0.1% after rising to a seven-week high of 6.4710 per dollar on Monday.
In cryptocurrencies, bitcoin briefly surpassed the $ 55,000 mark after a 10% surge on Monday, fueled by reports that JPMorgan Chase is planning to create an actively managed bitcoin fund. Bitcoin has now dropped to $ 54,700.
It interrupted a five-day streak of losses that brought the digital token to the $ 47,000 mark, with losses accelerating amid concerns over President Joe Biden’s plan to raise taxes on capital gains.