Dollar Up on Higher Yields; Budget Boost for Sterling

The yield on benchmark 10-year U.S. Treasuries traded around 1.49% overnight. It was on track towards a one-year high of 1.61%. 

Forex investors were betting that the government stimulus that will aid a strong economic recovery will result in revived inflation. This has pushed the U.S. central bank into early tightening action.

The dollar traded higher in early European forex trading on Thursday. The currency was lifted by rising U.S. Treasury yields. Traders were awaiting the speech by Federal Reserve Chairman Jerome Powell later for guidance, bringing him firmly into focus.

Powell is due to speak at a conference at 12:05 PM EST (1705 GMT). This will likely be his last outing before the bank’s policy-making committee convenes mid-March. 

In recent days, many Fed officials have played down the growth in Treasury yields. On Tuesday, though, Fed Governor Lael Brainard said that the rapid rise in yields had “caught her eye.”

Currencies Movements

The Dollar Index added 0.1% at 91.002 at 3:55 AM ET (0755 GMT). That added to Wednesday’s gain of around 0.3%.

EUR/USD lost 0.1% to 1.2058 while USD/JPY added 0.1% at 107.13 after hitting a seven-month high. AUD/USD gained 0.5% to 0.7812, still strong after Wednesday’s strong GDP data. Moreover, the kiwi and Canadian dollar (CAD) also rose.

The NZD/USD pair edged up 0.16% to 0.7258 and the USD/CNY pair inched up 0.03% to 6.4696. 

The growth in Treasury yields came despite Wednesday’s data showing the U.S. labor market’s struggle last month. In February, private payrolls rose less than expected. But the weekly initial claims numbers will also be scrutinized ahead of the official payroll release due on Friday.

In the U.S.,the issue of higher yields was not solely a factor, with the 10-year U.K. Gilt yield climbing to 0.78%. This rate is near its 11-month high of 0.836% hit last week, after the government disclosed much higher borrowing. 

It has since slipped back to 0.775%, but sterling remains supported. The GBP/USD pair was trading 0.1% higher at 1.3956.

ING said yesterday’s U.K. budget was seen to strike the right balance and support the spring recovery.  It also said that Gilts sold off on the larger than expected supply plans. Yet, they think the re-assessment of UK growth prospects can support GBP.