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US DOLLAR INDEX

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Dollar hits three-month highs as Fed's Powell sticks to script

03/04/2021 | 03:30pm EDT
3D printed percentage symbols are seen in front of dollar banknotes in this illustration

NEW YORK (Reuters) - The dollar surged to three-month highs on Thursday after Federal Reserve Chairman Jerome Powell failed to express concern about a recent sell-off in U.S. Treasuries as some traders had expected, resulting in higher bond yields and demand for the greenback.

Powell set aside concern that a recent move up in U.S. Treasury yields might spell trouble for the Fed as investors push up borrowing costs the central bank wants to keep low.

While Powell said the increase was "notable and caught my attention," he did not consider it a "disorderly" move, or one that pushed long-term rates so high the Fed might have to intervene in markets more forcefully to bring them down, such as by increasing its $120 billion in monthly bond purchases.

Some investors expected Powell to "at least acknowledge that there is some concern regarding the pop in yield, which he didn't do," said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.

"Overall his message remains the same, which is essentially they will maintain looser monetary policy until the economy shows consistent strength and we get back closer to what we were pre-pandemic in regards to both inflation and the labor market," Trang said.

The dollar index was last up 0.53% at 91.561, after getting as high as 91.663, the highest since Dec. 1. The euro dipped 0.73% to $1.1973, the lowest since Feb. 5.

Benchmark 10-year Treasury yields got as high as 1.555% but are holding below a one-year high of 1.614% reached last week.

The dollar has gained along with U.S. government bond yields as impending U.S. fiscal stimulus adds fuel to expectations of higher inflation and the rollout of vaccines against COVID-19 heightens optimism that the economy headed for recovery.

"The U.S. is assuming the leadership position on growth matters, fiscal dominance and certainly vaccinations," said Mazen Issa, senior FX strategist at TD Securities in New York.

Jobs data for February on Friday is the next major U.S. economic focus.

The Swiss franc and the Japanese yen continued their recent weakness. They have been hurt expectations the U.S. will lead global growth, which some analysts are calling U.S. exceptionalism.

"The traditional (funding currencies) like euro, yen and Swiss, look to be particular laggards in that environment under a higher U.S. yield backdrop," said TD's Issa.

The franc weakened as far as 0.9297, the lowest since July 23. The yen reached 107.93, its weakest since July 1.

Higher-risk currencies, including the Australian dollar, by contrast, are positioned to outperform as global growth improves. The Aussie gave back earlier gains on Thursday, however, as stocks fell. It was last down 0.57% on the day at $0.7730, and is holding below three-year highs of $0.8007 reached last week.

In the cryptocurrency market, bitcoin fell 5.36% to $47,691. Ether dropped 3.21% to $1,518.

(Editing by Nick Zieminski)

By Karen Brettell


© Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.16% 0.64573 Delayed Quote.2.33%
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) 0.43% 84.306 Delayed Quote.5.61%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.20% 0.77825 Delayed Quote.0.24%
BITCOIN - EURO 1.05% 46923.37 Real-time Quote.96.50%
BRITISH POUND / JAPANESE YEN (GBP/JPY) 0.01% 151.2 Delayed Quote.6.46%
CANADIAN DOLLAR / AUSTRALIAN DOLLAR (CAD/AUD) -0.21% 1.026546 Delayed Quote.1.27%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.02% 0.662893 Delayed Quote.3.70%
CANADIAN DOLLAR / JAPANESE YEN (CAD/JPY) 0.22% 86.528 Delayed Quote.7.07%
EURO / AUSTRALIAN DOLLAR (EUR/AUD) -0.16% 1.54805 Delayed Quote.-2.21%
EURO / JAPANESE YEN (EUR/JPY) 0.23% 130.519 Delayed Quote.3.30%
EURO / US DOLLAR (EUR/USD) 0.04% 1.2047 Delayed Quote.-2.03%
JAPANESE YEN / SWISS FRANC (JPY/CHF) -0.33% 0.844 Delayed Quote.-1.34%
NEW ZEALAND DOLLAR / JAPANESE YEN (NZD/JPY) 0.45% 78.089 Delayed Quote.4.53%
S&P GSCI GOLD INDEX 0.05% 1032.3127 Delayed Quote.-6.57%
US DOLLAR / JAPANESE YEN (USD/JPY) 0.23% 108.329 Delayed Quote.5.36%
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