Dollar Bounces Back, US Yields Up; Fed, Biden Speech Eyed

The U.S. dollar drifted higher on Wednesday’s forex trade. Investors and traders moved to the sidelines ahead of a U.S. Federal Reserve policy statement. They were also holding for a speech by President Joe Biden later in the day, where he is to announce more stimulus plans.

The dollar recovered from a one-month low touched earlier this week. Investors expect the Fed to maintain its policy settings. Moreover, Fed Chairman Jerome Powell is likely to repeat his dovish message.

The dollar index added 0.2% at 91.047, bouncing from Monday’s low of 90.679. That was its weakest level since March 3.

The forex market, however, was not convinced a recent downtrend had ended.

The dollar’s gains were also supported by higher U.S. Treasury yields. That is with benchmark yields on 10-year notes rising over 1.60% following tepid auction results. 

On Tuesday, investors’ inflation expectations rose above 2.40%, the highest level since 2013. These are measured by the break-even inflation rate calculated from U.S. inflation-linked bonds.

However, analysts expect the U.S. central bank will remain unmoved by the prospects of more stimulus plans. Moreover, of growing inflation expectations, holding the prospect of more losses for the currency in the coming weeks.

MUFG strategists said they still expect Powell to remain ultra-dovish. They emphasize the long period ahead in which the Bank plans to maintain loose monetary policy. It will leave open the prospect of further USD weakness, the strategists added.

Currencies Movements

The euro was down 0.2% to $1.2070, off Monday’s two-month high of $1.2117.

The dollar stood at 108.97 yen, after jumping 0.59% overnight. It also has extended its recovery from a seven-week low of 107.48 touched last week, with the rises in U.S. bond yields.

The GBP/USD pair fell 0.3% to 1.3873, while USD/JPY rose 0.3% to 109.00.  USD/JPY extended its recovery from a seven-week low of 107.48 touched last week. The yen was on the back foot as Japan’s economic recovery was thwarted by lockdowns across its most populous prefectures.

The Australian dollar lost 0.3% to $0.77415 after the country’s consumer price index came in weaker than expected. 

 In digital currencies, the world’s second largest cryptocurrency in terms of market capitalisation, touched a new peak on Wednesday. Participants cited  media reports about the European Investment Bank’s plans to launch a digital bond sale on the ethereum blockchain network.

Ether, a term that has become interchangeable with ethereum, is the digital currency or token that facilitates transactions on the ethereum blockchain.