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Dollar Edges Lower; Remains Elevated on Higher Yields

Published 29/09/2021, 08:18
© Reuters.
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By Peter Nurse

Investing.com - The dollar edged lower in early European trade Wednesday, but remained near its best levels this year as higher U.S. Treasury yields, potential Federal Reserve tapering and global growth concerns stemmed any losses.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 93.718, just under its 11-month high of 93.805 reached during the last session.

USD/JPY fell 0.1% to 111.44, after earlier touching an 18-month high of 111.68, EUR/USD edged higher to 1.1682, after falling to a one-month low overnight, GBP/USD rose 0.1% to 1.3553, rebounding a touch after dropping 1.2% on Tuesday, its largest daily fall in more than a year, while the risk sensitive AUD/USD rose 0.3% to 0.7255. 

U.S. Treasury yields edged lower early Wednesday, with the benchmark 10-year yielding below 1.53%, but the dollar has been generally supported by the recent surge in yields, up more than 25 basis points in five sessions to peak at around 1.56%.

These gains followed 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.

Federal Reserve Chairman Jerome Powell also highlighted “upside risks” to inflation in his testimony to the Senate Banking Committee on Tuesday, not helped by surging global energy prices.

The dollar is also benefiting from its status as a safe haven as concerns grow about the growth outlook in China, the second largest economy in the world, with power outages hitting production and property developer China Evergrande Group (HK:3333) still at risk of collapse despite raising $1.5 billion with the sale of a stake in a banking affiliate. The proceeds will not be available to pay bondholders, however.

USD/CNY rose 0.1% to 6.4644, with the yuan only hit marginally after China’s central bank injected 100 billion yuan ($15.5 billion) into the financial system on Wednesday, for a ninth day in the longest run since December.

Closer to home, Treasury Secretary Janet Yellen recently warned that the debt ceiling must be raised or suspended by sometime in October or the U.S. government will be unable to pay its bills.

“Financial markets are already ‘concerned’ judging by the rising yields on short-term Treasury bills from mid-October,” said analysts at Nordea, in a note. “In previous years, uncertainty has caused interest rates on some Treasury bills to spike in anticipation of reaching the debt limit.”

 

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