The dollar drifted near a two-week low after US bond yields eased from the highest recently, while the market participants were waiting for minutes of the Federal Reserve meeting because later in the session to determine the dollar path in the future.
The previous quarter saw a surge in the US Treasury yields and the strongest dollar rally in the years, about the increase in expectations that accelerating US economic growth and inflation could force the Fed to leave its promise to keep the interest rate near zero until 2024. On Tuesday, IMF said that unprecedented public expenditure to fight pandemic would encourage global growth to six percent this year.
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But the bond market has stabilized so far this week, with a 10-year US Treasury yield at 1.64%, down from the peak of 1.776% at the end of March. At 0716 GMT, the dollar was at 92,368 against a basket of currencies, approaching two weeks now, after falling from the highest 93,439 recently, which it touched on March 30.
“Repair of the next USD and more clearly will only be justified if this boom also causes an increase in the inflation rate to which the Feds must react with higher interest rates.” Market participants are waiting for the Fed’s Minutes, which will be released later in this session, for instructions on the Fed policy view on yields.
“Investors will scan minutes to find ‘discomfort’ among policymakers about the increase in inflation prospects and in parallel every clue that the discussion migrates towards defining the timeline for the purchase of tapering assets,” the ING strategist wrote in the note.
“Is there a hawkish signal (even light) definitely bear the risk of hitting Treasury and providing support to the dollar.” The US money market was pricing in a 25-base point increase in December 2022. The euro-dollar was stable at $ 1.18705 after being reinforced so far in April.
So far, in 2021, the Euro was driven by the prospect of economic recovery from Covid-19 in Europe, which lagged behind from the United States and England, but the Euro has picked up during the past week. The European benchmark equity index, STOXX 600, was closed on a record high on Tuesday, recovering all losses driven by the pandemic.
“We recently lowered our estimates for the Eurozone GDP growth this year to 4.3%, from the previous 5%. But we do expect a catch-up due to the launch of the vaccine, allowing restrictions to subside,” UBS said in the note. “The fact that the STOXX 600 Europe reached the highest record on Tuesday showed that investors still looked through the delay in the reopening of the current continent.”
The late eurozone and PMI UK for March will be published throughout the morning. The Australian dollar fell against the dollar, down 0.4% at 0.76385, while the New Zealand dollar fell 0.3%, both of them paused their upward track of the last two weeks.
The Canadian dollar also fell, hit by the third wave of coronavirus pandemic in the country. Elsewhere, financial officials from the group of 20 large economies are ready to get a $650 billion boost in IMF emergency reserves and expand freezing for payment of debt as part of efforts to help developing countries still struggling to fight the pandemic.
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