Dollar in Demand as U.S. Economy Progresses

The dollar traded higher in early European forex trading on Thursday, lifted by rising Treasury yields. Pessimism over the U.S. economic outlook began to fade.

The Dollar Index was up 0.2% at 91.320 at 3:10 AM ET (0810 GMT). It was near its highest level since early December.

USD/JPY added 0.2% at 105.22 and EUR/USD lost 0.2% to $1.2008. That was close to a nine-week low.  Moreover, the risk-sensitive AUD/USD advanced 0.2% at 0.7629.

Sentiment for the dollar has improved, buoyed by the promise of additional fiscal stimulus by U.S. President Joe Biden. He is focused on making progress with coronavirus vaccinations, as well as on improving economic data.

Treasury yields have started to rise. The 10-yr Treasury note’s yield was up 0.9% early Thursday. This was on the implication of additional borrowing to fund the stimulus. 

Moreover, U.S. economic data have improved, with Wednesday’s ADP data showing the country’s private sector added a net 174,000 jobs. That was in the month through mid-January, bouncing back strongly from its lockdown-related blues.

This brings the weekly initial claims data, due later Thursday, and more specifically Friday’s official employment report firmly into focus. That is to see whether these confirm the rebound in the U.S. labour market.

ING analyst James Knightley in a note said, they’re confident that growth in the U.S. could top 5 per cent this year. 

This has put the U.S. Federal Reserve’s accommodative monetary stance firmly in focus. Traders are beginning to wonder when the central bank will start to tighten policy.

Currencies Movements

In other currency news, GBP/USD fell 0.4% to 1.3588 ahead of a Bank of England policy meeting. It will publish findings on the feasibility of negative interest rates.

Meanwhile, the Pound to Australian Dollar exchange rate slumped this morning.  Markets await what the Bank of England (BoE) has to say following the first interest rate decision of 2021.

The pairing is currently trading at around AU$1.7795, at the time of writing. 

The Pound is struggling this morning as investors still await the BoE’s interest rate decision.

No changes are expected and interest rates are anticipated to stay at 0.1%. But markets are waiting to hear from Governor Andrew Bailey regarding negative interest rates.

The Pound would likely be rallying against the Australian Dollar if Governor Bailey further disregards negative interest rates.