US Dollar Outlook Brightens Amid Rising Yields, Volatility

US Dollar Outlook Brightens Amid Rising Yields, Volatility

Global coronavirus infections stood at more than 90 million as countries struggle with the pace of vaccinations.

On Wall Street, stocks slipped but were still not far from record highs.

The pan-European STOXX 600 index lost 0.67%.

In Asia, the largest MSCI index of Asia-Pacific stocks excluding Japan fell 0.2%, after jumping 5% last week to record highs.

Asian shares paused near historic highs on Monday while Treasury yields were at a 10-month top as "trillions" in new US fiscal stimulus plans were set to be unveiled this week, stoking a global reflation trade.

Expectations of a multitrillion-dollar stimulus plan and the belief the Federal Reserve will not act to counter rising interest rates, along with new Treasury supply are helping yields rise, said Gennadiy Goldberg, an interest rate strategist at TD Securities in NY.

"An early Fed taper creates upside risks to our year-end 1.5 per cent 10-year Treasury target and supports our longer-term expectations for neutral rates moving towards 3 per cent", he said in a note to clients.

The U.S. 10-year Treasury yield rallied to a almost 10-month high Tuesday as investors anxious that stimulus measures to combat the economic slowdown caused by COVID-19 could unleash a wave of inflation down the road.

Meanwhile, on Friday, January 9, the rupee gained seven paise against the USA dollar on to close at 73.24, tracking an intense rally in domestic equities, while also reflecting a sharp recovery from the day's lowest level.

"While the United States dollars may catch a bid on position-adjustment or profit-taking after its recent weakness, a sustained recovery will have to be accompanied by either a clear improvement in recent yield trends or a positive US growth shock", said Shaun Osborne, chief currency strategist at Scotiabank.

The euro pulled back to US$1.2185 from a recent top of US$1.2349, but has support around US$1.2190. Rising market volatility and demand for safe-haven currencies could be exacerbating US Dollar buying pressure as well.

Brent crude prices hit their highest since February as tighter supply and expectations of a drop in US inventories offset concerns over rising coronavirus cases globally.

The Japanese yen strengthened 0.14pc versus the greenback at 104.11 per dollar, while Sterling was last trading at $1.3624, up 0.81pc on the day.

"The renewed concerns about demand due to very high numbers of new (COVID-19) cases and further mobility restrictions, plus the stronger USA dollar, are generating selling pressure", Commerzbank analyst Eugen Weinberg said. USA crude futures fell 0.7% to $ 51.84 a barrel.

The sudden lift in bond yields undermined gold, which pays no interest, and the metal fell back to US$1,844 an ounce from its recent peak at US$1,959.

Bitcoin last fell 17.49% to $31,498.43.

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