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Saturday, October 23, 2021
Trading

Dollar up, yen lower as U.S. bond yields at three-month high

Dollar up

The climb in U.S. yield was attributable to the U.S. Federal Reserve’s more hawkish stance in its latest monetary policy handed down during the previous week

The dollar rose on Tuesday morning in Asia, with the yen trading near an almost three-month low to the dollar, with rising U.S. bond yields attracting Japanese investors.

The U.S. Dollar Index inched up 0.07% to 93.448 by 3:54 AM GMT.

The USD/JPY pair was up 0.21% to 111.23, jumping above the 111.07 mark hit on Monday, a level not touched since Jul. 5.

The AUD/USD pair edged up 0.19% to 0.7299, with data released earlier in the day showed that Australian retail sales contracted 1.7% month-on-month in August. The NZD/USD pair inched up 0.01% to 0.7017.

The USD/CNY pair inched down 0.02% to 6.4545 while the GBP/USD pair inched up 0.07% to 1.3704.

The benchmark 10-year U.S. yield briefly topped 1.5% on Monday, a level not seen since June 2021, and the two-year yield rose to its highest since March 2020. This attracted investors from Japan, with 10-year Japanese government bond yields remaining near zero due to the Bank of Japan’s yield curve control policy.

The main impact of higher Treasury yields on currencies has been to see USD/JPY make further upward progress, now banging against 111, National Australia Bank head of FX strategy Ray Attrill said in a note.

111 will be a tough nut to crack, bearing in mind the pair has spent only two days with time above this level so far in 2021, and with 10-year Treasury yield having been as high as 1.77%, the note added.

The climb in U.S. yield was attributable to the U.S. Federal Reserve’s more hawkish stance in its latest monetary policy handed down during the previous week. The central bank could begin asset tapering as soon as November 2021 and hike interest rates sooner than expected.

Some investors predicted an upward trend for the dollar could continue over time.

As much as asset tapering in itself is not a surprise, an earlier end to its program will reinforce that downside risks to the dollar have diminished, TD Securities senior FX strategist Mazen Issa said in a note.

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